Using stock screening tools can be a quick way to discover new and exciting income shares. Dividend investors aiming to supercharge their passive income can filter through thousands of British businesses in seconds to find some of the largest payouts on the London Stock Exchange.
And right now, two of the most generous yields include Ultimate Products (LSE:ULTP) at 10.2% and Taylor Wimpey (LSE:TW.) at 9.7%
But it’s essential to remember that dividends aren’t set in stone. Management teams can cut dividends during periods of financial distress. And investors have to dig deeper to find out whether the income from high-yield shares is sustainable or not.
The branded homewares business doesn’t exactly have the best market conditions to operate in right now. Its latest results saw revenue take a 6% haircut across the first half of its 2025 fiscal year (ending July). That’s more resilient than most analysts were expecting. But on the back of higher freight costs and a less favourable product mix, underlying earnings tumbled by almost 40%!
The impact of the earnings decline is laid bare in the Ultimate Products’ share price. The stock has seen almost 60% of its market-cap wiped out, pushing its dividend yield to today’s impressive level.
The company’s payout policy states that it intends to return 50% of post-tax profits back to shareholders. As such, the group’s interim dividends have already been adjusted downward from 2.45p to 1.55p. Yet, this also means that the revised payout’s covered by earnings, which is a positive signal of sustainability.
However, if earnings continue to fall, dividends will likely follow. And based on the current analyst consensus and a recent profit warning, that looks likely to happen. There’s still an argument to be made for value investors given that the shares trade at a cheap price-to-earnings ratio, even on a forward basis. But for income investors, the group’s high yield looks like a trap, in my opinion.
Inflation and higher interest rates have taken their toll on British homebuilders. Higher input costs combined with falling home prices are squeezing profit margins. And when throwing in an additional £222.2m in cladding fire safety provisions, Taylor Wimpey’s profits have tumbled rapidly into the red, with dividends getting clipped in the process.
Just like Ultimate Products, the shares of this once-beloved income stock have been stuck on a downward trajectory, with investors suffering a 40% drop over the last 12 months. But the question once again is, with the damage now done, is this secretly a lucrative dividend opportunity?