High-yield UK dividend stocks: a once-in-a-decade chance to build long-term wealth?
The UK is home to some of the most generous dividend stocks in the world. Investors can still lock in yields of 5%, 6%, even 7% or more, with the potential for share price growth on top.
Ideally, those dividends should be automatically reinvested while in the wealth-building phase. That buys more shares, which pay more dividends, which can then be reinvested again. This creates a powerful compounding cycle that quietly gathers momentum over time.
Then, when retirement arrives, those dividends can be drawn as income. Better still, if the shares are held inside a Stocks and Shares ISA, that income is tax-free.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Top FTSE income shares
Itâs a brilliant way to build long-term wealth, slowly but steadily. The key is diversification. A balanced portfolio of income stocks means that if one or two disappoint, others should hopefully make up the difference.
Three years ago, I bought three top income stocks: FTSE 100-listed Lloyds Banking Group and wealth manager M&G, and FTSE 250 housebuilder Taylor Wimpey (LSE: TW).
Two of these have been outstanding buys. Lloyds shares are up 70% over the past year, and 155% over two. Itâs a reminder that income stocks can deliver bags of capital growth too.
The downside of a rising share price is that the yield falls for new investors. Today, the trailing yield has slipped to a modest 3.5%. However, it should rise steadily. The board has hiked the interim dividend by a generous 15%.
M&G also had a stormer. I bought for its jaw-dropping 10% yield and got growth too. The M&G share price has soared 47% over the past year. That’s trimmed the yield to around 6.5%, but it’s still pretty nifty. Future dividend growth is likely to be more modest than at Lloyds, roughly 2% a year.
Taylor Wimpey shares struggle
My third pick, Taylor Wimpey, has been a flop on the growth front, so far. Its shares are down 8% over the past year and 27% over two.
The housebuilder is trading close to a 10-year low. Itâs not dirt cheap, with a price-to-earnings ratio of around 12.7, but still looks reasonable value. And it has one huge attraction: a stunning trailing dividend yield of 8.8%.
So while the best yield opportunities in Lloyds and M&G may have passed, I donât think thatâs true for Taylor Wimpey. It could still turn out to be a once-in-a-decade opportunity to grab an ultra-high second income, but there are no guarantees.
Housebuilders have endured a bruising decade, hit by economic uncertainty, affordability pressures, rising interest rates and the end of the Help to Buy scheme. Conditions are improving as the Bank of England cuts rates, but weâve seen false dawns before.
Taylor Wimpey trimmed the dividend by 1.25% in 2024 and could do so again. While completions, selling prices and revenues rose in 2025, operating profits grew less than 1% to £420m, below forecasts. First-time buyers remain stretched, and rising unemployment wonât help.
Yet I think the chance of a recovery, combined with that brilliant yield, makes Taylor Wimpey well worth considering as part of a balanced portfolio of income stocks. It’s certainly an exciting part of mine.
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Harvey Jones has positions in Lloyds Banking Group Plc, M&g Plc, and Taylor Wimpey Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
