For second-income-focused investors seeking alternatives to the usual blue-chip dividend names, several under-the-radar UK stocks offer attractive yield prospects.
While not without risk, these companies provide regular payouts, improving fundamentals, and long-term growth potential. Below are three lesser-known, second income opportunities to consider. Each comes with an attractive dividend profile but clear risks to weigh.
Arbuthnot Banking
Arbuthnot Banking‘s (LSE:ARBB) a small UK bank with a long heritage, currently offering an appealing forward dividend yield of 5.3% for 2025, moderating to 6% by 2027.
The payout’s grown steadily from 38p per share in 2021 to a forecasted 61p by 2027, underpinned by rising earnings and robust profitability. The dividend distribution rate remains conservative (under 50% in later years), suggesting headroom for resilience or further increases.
What’s more, the valuation’s relatively compelling versus FTSE 100 banks. The forward price-to-earnings (P/E) of 9.1 times on a statutory basis falls to 6.4 times by 2027. As such, for investors willing to look beyond the high street names, Arbuthnot represents an interesting opportunity.
As a smaller UK bank, Arbuthnot remains exposed to shifts in interest rates, credit quality, and economic cycles. A slowdown in the UK economy or pressure on net interest margins could impact earnings and dividend cover.
Card Factory
Card Factory has re-established itself as a steady cash generator following a difficult pandemic period. From a zero-dividend policy, it resumed payouts in 2024 and is expected to yield 6.5% by 2028.
Earnings per share growth has been strong, from 2.4p in 2021 to a forecasted 17.7p by 2028, enabling progressive dividends without stretching payout ratios.
The company’s forward P/E ratio of 5.77 times and improving free cash flow (FCF yield of over 13% by 2028) suggest further potential for appreciation.
However, investors should be wary of the company’s net debt as well as the slow death of the UK high street — Card Factory maintains 1,000 stores around the UK, but now has an online presence through the Funky Pigeon takeover.
Bodycote
Engineering services firm Bodycote offers a more modest forward yield around 3.2%, moving to 4% by 2027, but this is supported by consistent free cash flow and relatively low payout ratios. With earnings expected to recover from a dip in 2024, dividends are forecasted to rise gradually from 21.3p in 2022 to 25.6p by 2027.
The company benefits from long-term industrial trends, such as lightweighting and energy efficiency in manufacturing. This supports its specialist heat treatment services.
It’s currently trading at 21 times forward earnings. This falls to 12.6 times by 2027, according to the forecasts and on a statutory basis. However, it’s worth noting that high capital intensity and exposure to cyclical industrial demand make it vulnerable during recessions.
The bottom line
These stocks demonstrate that income opportunities exist beyond FTSE giants. While each carries its own risks — debt or cyclicality — they also offer meaningful yields and improving fundamentals.
What’s more, they also offer dividends with a relatively strong possibility of share price appreciation. And I say relatively strong because many of the FTSE 100’s big dividend payers don’t offer much or any long-term price appreciation. Personally, I believe all three are worthy of consideration, and I do hold shares in Arbuthnot.
