Dividend shares have lengthy been a most well-liked method for UK traders to generate passive revenue. As inflation places stress on the financial panorama, traders are more and more drawn to the dependable revenue that such shares provide. 

Yields on the FTSE 250 are at the moment greater than regular as its efficiency lags behind the FTSE 100. This may very well be a possibility.

My prime UK dividend picks at the moment

I’ve recognized three UK shares with engaging yields, robust financials and long-term potential that I feel are worthy of additional research.

Dunelm Group

The homewares and family items retailer Dunelm Group operates roughly 80 shops throughout the nation. It has a stable monitor document of accelerating dividends for nearly 20 years, from 3.8p a share to 43.5p. It has additionally paid a particular dividend for the previous 4 years, that means its 4.5% reported yield has been nearer to eight%.

However latest price exercise has been much less spectacular, with the inventory down 18% up to now 5 years. Many of the losses occurred throughout the 2022 market downturn, revealing the enterprise’s sensitivity to financial troubles. It is a vital threat to contemplate as US commerce insurance policies might additional disrupt the worldwide financial system this 12 months.

Nonetheless, I really feel the superb dividend monitor document makes it value contemplating.

OSB Group

OSB Group (LSE: OSB) is a UK challenger financial institution based mostly in Kent that gives specialised mortgage and mortgage merchandise. It’s been paying dividends for 10 years, with a yield usually between 6% and 9.4%.

At present, it seems to be undervalued, with a price-to-earnings (P/E) ratio of solely 4.27 and a price-to-sales (P/S) ratio of 0.76. These are each effectively beneath common, suggesting room for development.

Nevertheless, that may very well be tough because it faces robust competitors from the UK’s many massive, established banks. In instances of financial unrest, residents are likely to favour the perceived security of manufacturers they recognise. That’s a threat OSB should overcome if it hopes to proceed rising.

Current efficiency has been staggered, with the financial institution’s internet margin falling to 7.8% in H1 2023 earlier than recovering to 16.14% in H1 2024. The financial institution’s enterprise worth lags, having fallen to £5.79bn in H1 2024 after peaking round £7.87bn in H1 2023.

As a shareholder, it has served me effectively and I imagine traders could be sensible to contemplate it. 

Pets at Dwelling

I’m not a pet proprietor however have lengthy thought of the potential of Pets at Dwelling (LSE: PETS). Right here’s why I feel savvy traders ought to do likewise. 

It operates via numerous segments, promoting pet equipment, grooming and vet companies. Over the previous decade, it’s made a number of massive dividend will increase reminiscent of a near-50% bounce in 2022. This affirms its dedication to shareholder returns.

However latest outcomes underwhelmed shareholders, dragging the price down to a five-year low in November 2024. Excessive inflation has pressured customers to chop down on bills, threatening the corporate’s backside line. There are indicators it might drop this 12 months but when it rises once more, Pets might undergo additional losses.

The total-year dividend has grown at a price of 21.8% per 12 months, from 5.4p in 2015 to 12.8p final 12 months. Because the price has fallen 50% since 2021, the yield has elevated from 1.8% to five.8%. This provides to the inventory’s engaging valuation, with a P/E ratio of 11.7 and a P/S ratio of 0.72.