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UK dividend stocks can be a great way to target a long-term passive income. Data from Computershare shows total dividends from London-listed stocks dropped 1.4% in the second quarter, reflecting lower special dividends and exchange rate pressures.
But stripping out these factors, dividends grew a robust 6.8% year on year to £33.1bn, higher than forecast. Computershare now expects underlying dividends to rise 2.8% over the course of 2025, up from a previous forecast of 2.1%.
Yet the rate of growth is still below the likely rate of inflation for 2025 (3.2%, according to the Office for Budget Responsibility). As a consequence, investors could still see their passive income eroded in real terms.
2 FTSE 100 dividend heroes
So investors need to carefully consider which dividend shares to buy, then, based on their earnings and balance sheet strength. While dividends are never guaranteed, here are two FTSE 100 dividend stocks to think about that offer excellent income potential.
BAE Systems
Large defence dividends have underpinned recent payout growth on the London stock market. Computershare’s data shows that together, arms contractors and financial services providers accounted for three-quarters of dividend growth in the second quarter.
This was thanks in part to Rolls-Royce, which paid its first dividend since the Covid-19 crisis. Pureplay defence business BAE Systems (LSE:BA.) was also a large contributor, hiking the annual dividend for 2024 by 10% year on year.
BAE is no stranger to delivering healthy payout increases since the pandemic. And supported by resurgent defence spending by NATO countries, they’re tipped to rise another 8.6% in 2025, to 35.8p. This results in a dividend yield of 2%.
The Footsie contractor looks in good shape to meet these forecast, in my opinion. Annual earnings are projected to increase 9%, which means dividend cover is a robust 2.1 times. Substantial free cash flows (£2.5bn in 2024) provide BAE with added steel to pay a growing dividend.
Investors can get larger yields than BAE’s. But the prospect of breakneck dividend growth for the foreseeable future still makes it a top income stock to consider. Despite competitive pressures and reputational risk if its product go wrong, I’m expecting profits to soar as geopolitical tensions grow.
Aviva
Financial services business Aviva (LSE:AV.) has also been a big dividend payer this year, as Computershare’s numbers show. It’s tipped to remain so over the course of 2025 as earnings more than double (a 114% increase is predicted).
Over the full year, total cash rewards of 37.96p per share are tipped. That’s up 6.3% from last year’s levels. City analysts believe falling interest rates and structural growth in its investment, protection and retirement markets will drive earnings and dividend rises.
As a consequence, the dividend yield on Aviva shares is an enormous 6%. That’s one of the largest on the FTSE 100.
But there are dangers to current dividend forecasts. Dividend cover is 1.3 times for this year, well below safety territory of two times and above. If earnings are blown off course, there’s a chance shareholder payouts may suffer too.
Yet a deep balance sheet will help Aviva keep growing dividends even if profits disappoint. With a Solvency II capital ratio of 203%, it should have the strength to absorb any temporary turbulence and keep dividends on a steep upward curve.
