Here are three dividend stocks that experts believe deserve a closer look in May 2026.

The income heavyweights

First up is Legal & General (LSE:LGEN). As one of the UK’s largest insurance and asset management groups, it provides a host of retirement and investment management services.

The bull case is straightforward. The stock currently yields 8.7%, backed by nearly two decades of consecutive dividend growth. And several institutional analysts are pointing to Legal & General’s expanding pension risk transfer business as a powerful long-term growth engine as defined benefit schemes continue to offload their liabilities.

However, not everyone is convinced, with some analysts rightfully flagging earnings coverage. With dividends currently running slightly ahead of earnings per share, any unexpected pressure on profitability could force management to reconsider the payout trajectory.

That’s a risk worth watching closely.

Another high-yield income stock to consider is Primary Health Properties (LSE:PHP). This is a specialist tax-efficient REIT that owns and leases primary healthcare facilities as well as GP surgeries across the UK.

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.

Dependable is probably one of the best words to describe its dividend, with the healthcare landlord raising shareholder payouts for 28 years in a row, underpinned by long-term leases predominantly funded by the NHS.

However, it’s important to highlight that while renting the majority of its properties to the NHS, the REIT is somewhat captured by its flagship customer.

The UK government has significant negotiating leverage when it comes to renewing leases. And if political priorities shift, budget cuts to certain parts of the NHS could translate into expiring leases not being renewed.

That’s potentially a big problem given that higher interest rates are already putting pressure on cash flows and, in turn, dividends.

A consumer retail dark horse

Another pick from the experts is Dunelm Group (LSE:DNLM) – the UK’s leading homewares retailer, selling everything from bedding and curtains to furniture through its nationwide store network and rapidly growing online channel.

Analysts at Barclays and Berenberg both carry Buy ratings, citing Dunelm’s exceptional cash generation and management’s consistent ability to grow market share even in tough consumer environments. The icing on the cake? The board recently declared a special dividend of 25p per share on top of its regular payout.

That’s certainly an encouraging sign for investors looking for a new income stock. However, it’s important to highlight the group’s sensitivity to the British consumer.

If UK household spending comes under renewed pressure from higher taxes or sticky inflation, discretionary homewares purchases are often one of the first things customers cut back on.

The bottom line

These are three very different businesses. But while none are perfect, they are all currently generating strong cash flows that are being used to reward shareholders with impressive yields.

Out of the three, Primary Health Properties looks like it’s the most secure in my eyes. But all three deserve a closer look. So, for income-focused investors hunting for a quality stock to buy this month, these might be worth mulling over.

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So, how do you transform a monthly £150 investment into a nine grand income stream? Let’s break it down.

Crunching the numbers

Right now, I can start drip-feeding money into a low-cost FTSE 100 index tracker. This move automatically diversifies my portfolio. And it allows me to match the performance of the wider stock market, which, historically, has generated an average of 8% per year.

Assuming that trend continues over the next 20 years, then my £150 monthly investment is eventually transformed into £88,353.06 – £52,353.06 of which is pure profit.

Having a near-£90k nest egg is certainly quite a lovely prospect. But how do I then turn this into a passive income stream?

The answer is dividends.

Overall, the UK’s flagship index currently offers a payout of 3.05% – less than what some high-interest savings accounts are offering right now. But when zooming in on some individual income stocks, the payout can be dramatically more substantial.

For example, Legal & General (LSE:LGEN) shares are offering 8.67% right now. Enough to generate £7,660.21 passive income from an £88.3k portfolio.

So, is this actually a good investment?

Bull versus bear

As one of the highest-yielding stocks in the entire FTSE 100, Legal & General has been getting quite a bit of attention from institutional and retail investors alike. With a long track record of continuous dividend growth dating back to 2010, the insurance and asset management group is among the most popular income stocks in 2026.

The company has been successfully capitalising on the tailwinds of the rapidly expanding pension risk transfer and retirement markets by issuing new annuities both here and in the US. And as a result, cash generation has surged, paving the way for massive dividends as well as buybacks.

However, while exciting, these payouts come with a caveat. Selling annuities today generates lots of cash up front, but also creates a long-term liability that Legal & General will need to keep paying.

To cover this expense, the firm invests across a diversified portfolio of asset classes. That alone isn’t an issue, and the group’s long track record suggests it knows how to allocate effectively. The problem is what happens if we fall into a painful recession.

Looking back at the 2008 financial crisis, Legal & General was forced to cut dividends by over 35% while the share price tanked by 80%!

What’s the verdict?

The macroeconomic landscape in 2026 is looking a bit recession-prone, especially in the UK, where unemployment and inflation are rising, while growth is stagnant. And Legal & General’s high yield is a reflection of this risk.

But with a recession scenario already partially baked into the Legal & General share price, now might indeed be a good time to consider this passive income stock for a portfolio. And it’s not the only business I’ve got my eye on today…

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Today, the blue-chip insurer and asset manager boasts a magnificent trailing dividend yield of 8.8%, the highest on the entire FTSE 100 index. It’s not hard to see why it’s one of the UK’s most bought companies. It certainly isn’t due to its stock performance. Over the last 12 months, Legal & General shares have climbed just 2%. Over five years, they’re down 11%. As a benchmark, the FTSE 100 climbed more than 45% over the same. That’s serious under-delivery. In fact, it gets worse than that.

Why won’t this FTSE 100 stock grow?

Today, Legal & General shares trade at similar levels to December 2014. It’s suffered a lost decade and then some. Investors will have bagged heaps of dividends but it does beg the obvious question. Does the sky-high passive income compensate for the lost share price potential?

There’s one thing worth pointing out. Every time a company pays a dividend, the stock falls to reflect the value coming out of the business. Legal & General goes ex-dividend twice a year. Each time, the shares fall around 4% on the day.

So to a degree, income comes out of growth. But it’s possible to get both. Just look at FTSE 100 rival Aviva. Today, it has a superb trailing yield of 6.4% (and it’s been higher). Yet the Aviva share price has also managed to grow 55% over the last five years.

Interestingly, Aviva shares struggled for years. I know that because I stupidly sold them, just before they took it off. CEO Amanda Blanc has presided over a remarkable turnaround since 2020, streamlining and tightening the business. A quick comparison of the two companies’ full-year operating profits show why Aviva is winning.

Aviva’s profits started at a lower level, and have risen to a much higher one. Legal & General’s actually fell in 2024, and barely recovered in 2025. Clearly, it’s not an accident that Legal & General’s shares are idling. But nor is it inevitable.

Can it play catch-up with Aviva?

CEO António Simões is looking to boost growth by unifying its asset management divisions, boosting private market capabilities and scaling the pension risk transfer business. He’s also looking to expand in the US, Canada, Netherlands and Asia, while rewarding investors with a record £1.2bn share buyback. The board plans to return more than £5bn to shareholders between 2025 and 2027. Dividend growth will slow to just 2% though.

The key question now is how well management executes that strategy. I hold Legal & General in my SIPP and will be watching its progress closely, while reinvesting every dividend to build up my stake. Personally, I think it’s worth holding for the income, but I’m hoping it has the potential to deliver some growth and generate an even higher total return.

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More than a million mortgages now have terms extending beyond State Pension age. And the number of private renters over 65 has risen 24% in the last five years to 461,000. In February, the average rent was £1,430 a month, which adds up to £17,160 a year. So how much would a pensioner need in their SIPP to cover that?

How much do I need to cover my rent?

The answer depends on the yield it generates. Today, many investors like to put their money into a spread of FTSE 100 stocks paying dividend income, as well as offering share price growth potential. The average FTSE 100 yield’s currently 3.3% but it’s possible to generate as much as 5%, 6%, or 7%, by targeting stocks that pay above average dividends. Here’s how big a pot you’d need to fund the average rent, depending on the yield.

• 5% yield – £343,200.
• 6% yield – £286,000.
• 7% yield – £245,143.

Today, the most generous income stock on the entire blue-chip index is insurer and asset manager Legal & General Group (LSE: LGEN). It boasts an astonishing trailing yield of 8.67%. At that rate, somebody could cover their rent with a pot of £197,924. However, I’d never suggest anybody goes all in on just one stock. Dividends are never guaranteed, and diversification’s essential.

I’d suggest building a portfolio of around a dozen shares, to spread the risk. I think Legal & General’s worth considering as one of them. In fact, I hold it. I’m reinvesting every dividend I receive to buy more shares in the stock, and will draw them as income after I stop working.

But there’s an issue with this stock. While the dividend income’s brilliant, the Legal & General share price has performed poorly. It’s up 5% over the last year, but still trades at similar levels to a decade ago. Investors will be comfortably ahead on income, but frustrated by the lack of growth.

A spread of FTSE shares is vital

The underlying business has become a little too sprawling and messy, and profits have been bumpy at times. However, management’s been working hard to streamline the company’s structure and generate new sources of profits. And it’s keen to reward shareholders too. In March, Legal & General launched a record £1.2bn share buyback, while hiking the dividend by 2%.

Stock performance tends to be cyclical, and I’m hoping Legal & General shares will swing back into favour once current geopolitical uncertainty passes. I still think it’s well worth considering as part of a balanced portfolio for long-term investors focused on income, whether they’re homeowners, tenants or simply have regular bills to pay.

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That’s why so many UK investors tuck money into a portfolio of high-yielding dividend shares each month. And to get the most bang for buck, using a tax-free ISA can minimise how much goes to HMRC.

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.

But how much should you really put in each month to hit something like £21,000 a year in income?

Running the numbers

Income portfolios chasing high-yield stocks often achieve 6%-8% yields. To generate £21,000 annually, you’d need a pot of £262,500 at 8%, or £350,000 at 6% — a hefty sum, but do-able over time.

Let’s be generous and say you achieve a slightly above-average 10% total return yearly (with dividends reinvested). Investing £500 monthly compounds to around £303,283 after 18 years. At 7% yield, that spits out £21,229 in dividends.

ONS data shows the UK median full-time salary is £39,039 a year, or £2,600 monthly after tax. If you can survive on just £2,100 a month by trimming expenses, you could afford that £500.

Naturally, anything less would just take a few extra years, so the sooner you start, the better. But even investors in their mid-40s should have more than enough time before retirement.

Stock hunting

To aim for that 10% return, don’t just chase sky-high yields — spread risk by building a solid, diversified portfolio.

Here’s one example blending growth and income shares across sectors including engineering, banking, insurance, property, and retail.

This mix achieved annualised total returns of 11% since 2016, but the average yield’s a bit low at 5.2%. To remedy this, you could weigh more toward higher yielders like Legal & General once the pot is big enough.

Why Legal & General?

Legal & General’s a FTSE 100 insurance giant with a very long and reliable dividend history. In 2025, it posted a full-year dividend of 21.79p, up 2%, with analysts eyeing a 8.7% prospective yield ahead.

The forward price-to-earnings (P/E) is 10.5, reasonable versus its 10-year average of 9.1, suggesting fair value. Earnings grew 9% in 2025, with 2026 forecasts at the high end of 6-9%.

These are typical characteristics of a sustainable income stock, rather than a growth leader.

But it’s still risky in some ways. Interest rate swings can hurt investment companies, credit spreads can widen on bonds, and longevity trends can strain pensions. Fortunately, its pension risk transfer business helps mitigate these risks.

Final thoughts

A passive income stream in retirement can spell the difference between surviving and thriving. It cuts out the stress about whether a pension will be sufficient and reduces the need to dip into savings.

But the payoff doesn’t come easy. You must stick to the plan, do the research, and make financial sacrifices. The most important step is the first one — start small in an ISA, stay diversified, and let compounding work.

Legal & General’s a good example of the type of starter stock to consider for an income portfolio. But conditions change constantly, so don’t get too comfortable and always keep abreast of new developments as they arise.

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There’s no such thing as a free lunch in the investing world however. And the potential risks here were brought to light in a recent research note by broker Jefferies.

A major downgrade

In this research note (posted on 5 May), analysts Derald Goh and Philip Kett downgraded Legal & General shares to an Underperform rating. They also lowered their price target to 185p (which implies that the company could lose around £3.8bn in market-cap).

The main reason the analysts are bearish on the insurer is to do with its net surplus generation (NSG) – a measure of free cash flow. They believe that in the years ahead dividend payments will consume roughly all of the company’s NSG, leaving no room for balance sheet strengthening, buybacks, or other endeavours.

Given this weak NSG set-up, the analysts believe that the shares will face a valuation reset as investors focus on stronger names in the sector (such as Aviva). Note that their new price target of 185p is about 27% below the current share price.

If this target was to be hit, investors buying the stock at current levels could be underwater for a while. It would take about three years worth of dividends just to break even (assuming that dividends aren’t reduced).

Should investors be worried?

Now, of course, this is just one firm’s view on the stock. Other firms are more optimistic in relation to the outlook for the insurer’s shares. Personally though, I do see a few risks when I look at Legal & General. For a start, the sky-high dividend yield is a bit of a red flag.

This is signalling that large institutional investors are avoiding the stock (if they liked it they would buy it and this would push its yield down). They obviously see something under the bonnet that they don’t like.

Another issue is dividend coverage (the ratio of earnings per share to dividends per share). It’s currently close to one, which suggests that a dividend cut is a real possibility in the years ahead.

There’s also the fact that Legal & General operates in a very competitive industry. And it’s competing against some far more powerful players (eg BlackRock).

Worth the risk?

That said, there are plenty of things to like here. One thing I like is the company’s diversified business model. This isn’t just an insurer. Instead, it’s a broad financial services company that offers solutions in relation to investment management, retirement and insurance.

I also think the valuation’s reasonable (even if Jefferies analysts expect a reset). At present, the forward-looking price-to-earnings (P/E) ratio is only around 10, so it isn’t an expensive stock. Note that if we take next year’s earnings forecast, the P/E ratio falls to 9.5.

I just think that investors need to be careful with this big name, given the risks. The shares could be worth considering, but I would think about keeping position sizes relatively small. After all, if a dividend yield looks too good to be true, it usually is.

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But that may also be part of the problem.

The stock is often framed almost entirely as a high-yield income play — a steady distributor of cash in an uncertain world. Yet that characterisation risks overlooking how the business actually generates its returns.

So the real question is this: is Legal & General simply a dividend stock — or is the market missing a more complex and potentially more valuable story?

More than just a dividend stock

Viewing it purely through that income lens may be too simplistic.

While the dividend is clearly central to the investment case, it’s ultimately an output — not the business model itself. Focusing on yield alone risks missing how those distributions are generated in the first place.

At its core, the financial giant operates across pensions, asset management, and insurance, with earnings driven by long-term capital allocation and structural demand rather than short-term market moves.

That distinction matters. This is not simply a passive income vehicle. It’s a business that actively deploys capital across multiple areas, with returns shaped by how effectively that capital is allocated over time.

Understanding that difference is key to assessing what really drives the investment case.

A business driven by capital allocation

This becomes clearer when looking at how management actually runs the business.

Management has been clear that maintaining a sustainable and growing payout remains a priority. But capital allocation decisions are driven by opportunity and market conditions, not fixed formulas.

In practice, that means a choice. Cash can be returned to shareholders. Or it can be deployed into areas such as pension risk transfer, where demand remains strong and long-term returns can be attractive.

That flexibility matters. It shows the business is not simply distributing excess cash. It’s actively deciding where capital is put to work.

Even the interest rate backdrop is less of a constraint than it might appear. The group can shift its investment approach across government bonds, credit markets, and private assets to support returns.

Taken together, this is a business that is far more dynamic than the typical ‘income stock’ label suggests.

What could go wrong?

Of course, there are risks to this more dynamic investment case. Capital returns are not guaranteed. While the dividend remains the priority, share buybacks depend on coverage ratios, market conditions, and the availability of attractive opportunities.

There’s also sensitivity to the external environment. The group’s pension risk transfer business relies on favourable spreads and demand from corporate schemes. If market conditions shift — for example, if credit spreads tighten or gilt yields move sharply — returns on new business could come under pressure.

Finally, while capital allocation flexibility is a strength, it also introduces uncertainty. Investors are ultimately reliant on management making the right decisions about where and when to deploy capital.

In my view, that’s a trade-off worth accepting for a business that offers both income today and the potential for more than the market currently assumes.

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But here’s the thing: some top FTSE 100 shares offer a brilliant blend of growth, income, and value for money. Severn Trent (LSE:SVT), HSBC (LSE:HSBA) and Legal & General (LSE:LGEN) are three such stocks I’m considering for my own ISA and think others could too. Read on to find out more.

All-round value

Utilities stocks aren’t famed for their explosive growth potential. But Severn Trent provides this in spades, its long-term £15bn investment programme rapidly expanding its asset base and ability to raise profits.

Is this reflected in the company’s valuation? I think not — its forward price-to-earnings growth (PEG) ratio sits just inside value territory of 1 and below, at 0.9. City analysts expect earnings to surge 18% this financial year.

With Severn Trent’s dividend yield at 4.2% it offers plenty of bang for your buck, in my view.

What I also like is that the water supplier’s operations are highly defensive, providing strong earnings visibility. Remember that rising interest rates could push borrowing costs higher, though.

Another top bargain?

HSBC is enjoying brilliant momentum as its emerging markets rapidly grow. Analysts have been steadily raising their earnings and share price forecasts following the bank’s forecast-beating Q4 performance. I think this could continue.

Right now earnings are tipped to rise 12% in 2026. It reflects the strong performance of the bank’s ongoing restructuring programme, along with its huge structural opportunities in Asia. RBC analysts, for instance, note that “Asian wealth is a key growth area for HSBC which should continue to grow other income over the medium term.”

HSBC’s forward PEG ratio is also an ultra-low 0.4. And its dividend yield for 2026 is 4.6%, beating the 3% average for FTSE 100 stocks. Asia’s traditional banks like this are facing increasing competitive threats. Yet this remains a top blue-chip to consider.

FTSE-leading dividend yield

Legal & General is one of the FTSE 100’s best-priced dividend stocks, in my view. Its forward price-to-earnings (P/E) ratio is 8.7 times, while its PEG is 0.9. Meanwhile, the dividend yield for this year is the index’s highest, at 8.8%.

Low earnings multiples and sky-high yields are sometimes a red flag for investors. It can often be a sign of a company in difficulties, or that a dividend cut could be imminent. Is this a category Legal & General shares fall into?

I believe not. Firstly, the company is highly cash generative and has a large capital pile. Its Solvency II capital ratio remains an enormous 210%, underpinning current dividend projections. It also has significant growth levers to pull, as an ageing global population drives financial products demand.

Legal & General’s earnings are tipped to rise 10% in 2026. I’m optimistic about these forecasts, though the fallout of the Iran War creates some uncertainty.

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However, analysts forecast it will rise to 8.7% this year, 8.9% next year, and 9.2% in 2028, although these payouts can go down as well as up over time.

Many investors may be considering retiring in the next few years. So how many L&G shares would they need to give up work now and live off the income?

How much is needed?

The Office for National Statistics places the median average salary in 2026 at around £39,000. So based on an 8.7% yield this year, I would need a capital pot of £448,276 to hit that income. That means 175,795 shares locked into my portfolio.

Few people will have half a million quid lying around the place to invest. However, much smaller investments made every month can soon build into a much bigger capital pot over time. Specifically here, just £10 saved and invested each day (£300 a month) would generate the same capital pot and £39,000 annual income after 28 years.

That includes the dividends being reinvested back into the stock to utilise the full supercharging power of dividend compounding.

Can the business support these dividends?

Ultimately, every company’s dividends are powered by sustained earnings growth. In L&G’s case, analysts forecast this growth will be a strong average of 15.4% a year over the medium term, at least.

A risk to this is aprolonged downturn in financial markets could reduce fee income across its asset‑management and pension businesses. Another is tighter regulatory capital requirements that could force the group to hold more surplus capital. That would limit its ability to drive earnings growth through new business and investment.

That said, its 2025 results showed profit before tax soar 80% year on year to £807m. This huge step‑up gives L&G far more room to support rising dividends.

The group also delivered £1.53bn of Solvency II operational surplus, up from £1.46bn. That reinforces the recurring capital generation that ultimately funds future payout growth.

And its contractual service margin now stands at £13.3bn. This is the ‘store of future profit’, with earnings already locked into the business from past policies. It gives L&G a highly visible pipeline of cash flows that helps support long‑term dividend growth.

My investment view

L&G has long been one of my core holdings designed to generate serious dividend income when I retire. Or I could use it beforehand, to keep working as and when I wished, but at a more sedate pace.

With an 8.5% yield, which is forecast to rise, it looks well placed to keep rewarding patient shareholders like me. All of this is supported by huge cash surplus generation, a deep store of future profit and soaring earnings.

Given this, I will buy more of the shares soon and have my eye on other similar stocks too.

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As I’ll hopefully prove, this could turn out to be a very expensive mistake.

Cash vs shares

One problem is that cash accounts typically deliver poorer income streams compared with share investing. Today, the best-paying Cash ISA with no notice period is offered by Trading212. Its variable interest rate is 4.51%, which isn’t terrible compared to what savers became used to in the 2010s.

But compared with the dividend yields that hundreds of stocks currently offer, that’s hardly great either. On the FTSE 100 alone, there are 16 companies with a forward yield higher than that, led by Legal & General (LSE:LGEN). The reading here is an enormous 8.8%.

Now let’s say someone has £20,000 to invest in a Cash ISA or Stocks and Shares ISA. If they opened that Trading212 account, they’d have a £902 passive income over one year, assuming the Bank of England keeps interest rates unchanged.

What about if they bought Legal & General shares in their investing ISA instead? They’d have made an income of £1,760 instead.

Let’s talk Legal & General

Dividends aren’t guaranteed. But I’m backing Legal & General to deliver the huge payouts analysts are expecting. Its asset management, insurance, and retirement divisions generate a steady flow of cash for dividends and share buybacks. As of December, its Solvency II capital ratio was 210%, soaring above the 100% regulatory minimum.

Could shareholder payouts come under pressure further out? It’s possible. Competition is mounting in key areas like pension risk transfer (PRT), which could impact earnings. Given the firm’s high payout ratios, a cut to dividends down the line isn’t out of the question.

Yet it’s highly unlikely in my view. I expect the company to maintain a strong balance sheet and enjoy solid profits growth, underpinned by demographic trends driving financial services demand.

Building retirement wealth

Now let’s talk about the second problem of prioritising cash savings.

The thing is, share investing doesn’t just offer the possibility of dividend income. With a well researched and diversified portfolio, individuals can also make juicy capital gains. This combination over time can lead to a life-changing passive income later down the road. Just ask one of the 5,070 Stocks and Shares ISA millionaires currently living in the UK today.

Let’s say that best-paying Cash ISA rate stays unchanged at 4.51% over the next 25 years. If I invested a £20,000 lump sum each year and reinvested the intererest, I would have £904,094 at the end of the period.

What about if I put that same £20k in a stocks ISA instead? Based on the long-term stock market average return of 9%, I’d have £1,792,708 with dividends reinvested. That’s almost double what I’d have made with a savings product.

And if this was then invested in 7%-yielding dividend stocks, it would generate a £125,490 annual passive income, or £2,413 a week. With many top dividend shares now trading cheaply, I think today’s a great time to explore the stock market.

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