I’m considering 3 top UK dividend stocks for my portfolio this July

I recently let go of one of my top paying dividend stocks, Vodafone, after it announced a 50% cut in payments starting next year. I’m considering reducing my interest in National Grid too, following weak earnings and a dividend decrease.

But which stocks to pick in their place? I already hold five out of the top 10 leading dividend-payers in country. Out of the remaining five, these three look the most promising to me. 

British American Tobacco

I already hold one strong dividend-paying tobacco stock, Imperial Brands, but it’s worth considering whether British American Tobacco (LSE: BATS) may be a better option. The main attraction, of course, is the higher yield — 9.4% compared to Imperial’s 7.1%. But would it be better value in the long term?

With a £55.1bn market cap, British American Tobacco is a much larger company. And despite becoming unprofitable in 2023, it has decent debt coverage and strong cash flows. It’s forecast to become profitable again this year, which would make it overall a more attractive option than Imperial. But for now, the negative earnings is a concern that needs resolving. 

I will keep an eye on the stock and consider buying if the projected growth materialises.

WPP

Public relations and advertising giant WPP (LSE: WPP) was enjoying strong dividend growth before Covid. After a 62% reduction, the annual 60p dividend fell to 22.7p — but has since been increased back to 40p. That shows impressive dedication to keeping shareholders happy. Historically, it’s been a reliable and consistent payer and the yield has doubled since 2021.

But growth has been less impressive. The yield is up partly because the share price is down 23% in the past five years. What’s more, at 5.4%, the yield is only slightly higher than average and isn’t well-covered by earnings. In comparison to higher-yield dividend stocks like Legal & General or Aviva, I don’t see much advantage in WPP. 

It could add an additional level of sector-based diversification to my portfolio. But for now, I think I’m diversified enough.

GSK 

Pharma giant GSK (LSE: GSK) has the lowest dividend yield on this list, at 3.9%. With so many other higher-yield stocks, why consider it? Partly, because it’s one of the biggest companies in the UK, at £62.6bn. In the top 10 UK stocks by market cap, only BP and HSBC have a higher yield.

It’s also paid a dividend consistently for over 20 years, although it fell by 27% in 2021. Still, at £1.10, earnings per share (EPS) far outweigh the 58p dividend. That reduces the chance of a divided cut and the yield is forecast to increase to 4.4% in the next three years.

Overall, I think GSK is my best option but it’s not without risk. UBS recently downgraded GSK from buy to neutral, citing ongoing legal issues regarding its drug Zantac and uncertainties about its shingles vaccine, Shingrix. Legal settlement costs and the potential reduction in US sales could hurt the share price.

While I have GSK firmly on my watchlist, I’ll wait for its Q2 earnings results on 31 July before I make a decision to buy.