Top FTSE 100 dividend stocks to buy if you want to retire on passive income

The FTSE 100 Index has underperformed its global peers this year. It has jumped by just 5.7%, while the Nasdaq 100, Kospi, and Nikkei 225 have soared by over 20% amid the artificial intelligence boom. This article highlights some of the top Footsie shares to buy if you want to retire with dividends.

Dividend stocks vs UK gilts

Income-focused investors have a major alternative: UK gilts. Data shows that UK government bonds have remained at an elevated level this year, and this trend may continue for a while. For one, recent data reveal that the UK’s government spending and deficits have continued rising. Inflation has also remained at an elevated level because of the US-Iran crisis.

The two-year note has a 4.12% yield, while the closely-watched five and ten-year are yielding 4.35% and 4.82%, respectively. 

A 4.8% annual return is not particularly bad for income investors, especially given the absence of capital gains taxes. However, inflation remains an important risk factor to consider. The latest data showed that UK inflation eased to 2.8% in April. Analysts expect inflation to rise in July as the government adjusts energy prices.

Another key risk to consider is that, in some instances, dividend stocks often generate a weaker total return than growth names.

Still, assuming inflation remains at 2.8%, the inflation-adjusted return would be about 2%, which is relatively modest. This makes investing in dividend stocks a better option. 

Legal & General and Aviva are top dividend stocks in the FTSE 100

Legal & General and Aviva are two of the best dividend stocks to invest in in the FTSE 100 Index. The two are top blue-chip companies that have a significant market share in the insurance and asset management industries. 

Legal & General has over £1.17 trillion, while Aviva have over £454 billion in assets under management (AUM). They also have millions of customers, mostly in the UK. 

LGEN has a dividend yield of 7.76%, while Aviva has 6.67%. As such, a £10,000 invested in the two firms will provide an annual dividend income of £770 and £667, respectively.

Still, the main risk for investing in LGEN and AV is that their stocks have underperformed the FTSE 100 Index this year. Aviva has slumped by 8.76%, while LGEN has risen by just 5%.

Standard Life 

Standard Life is another top UK dividend stock to consider. It has already jumped by over 21% in the last 12 months and still pays a 7% dividend.

Standard Life is a well-known brand that owns companies like Standard Life, SunLife, Phoenix Life, ReAssure, and Phoenix Life. It recently announced its decision to acquire Aegon UK in a £2 billion deal. 

This buyout will help to create a top player in the retirement savings industry. It will have over 16 million customers and over £480 billion in assets. The most recent results showed that its business is doing well, with its operating cash generation rising to £1.47 billion last year. 

NatWest Group

NatWest, the parent company of Royal Bank of Scotland, Ulster Bank, Coutts, and Lombard is another top dividend stock to consider. It pays a 5.5% dividend yield, higher than other UK banks like Lloyds and Barclays.

NatWest stock has also done well, rising by 20% in the last 12 months. The most recent numbers showed that its total income rose to £4.358 billion in the first quarter, while its profit for the period rose to £1.5 billion.

Some of the other top dividend companies to consider in the UK are HSBC, IG Group, Diageo, BP, and British American Tobacco (BAT).