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Income stocks are finally back in fashion after a mixed decade, as the FTSE 100 has roared into life. The index rose 21.5% last year, while the average dividend yield hovered around 3.5%, meaning total returns nudged 25%. It’s started 2026 as it left off, climbing 1.35% today, its best one-day move in almost two years. So could now be a brilliant opportunity to build long-term wealth from dividend shares?
I’m in seventh heaven after loading up my Self-Invested Personal Pension with FTSE 100 stocks three years ago, including dividend heroes Lloyds Banking Group, M&G, and Phoenix Group Holdings. Last year, all three performed brilliantly. Lloyds climbed 80%, while M&G and Phoenix both rose 45%, and that was before their dividends landed in my SIPP. In the case of M&G and Phoenix, I’d locked into a near-10% yield.
Dividends back with a bang
Sceptics were writing off UK shares due to our struggling economy, but three-quarters of the FTSE 100’s earnings come from overseas, insulating it from local difficulties. Add in attractive valuations across forgotten old school sectors like banks, miners, pharmaceuticals, and energy, and the market was a happy hunting ground for income-focused investors.
NatWest (LSE: NWG) is just one example. Its shares had been largely ignored for years, as it battled to escape the shadow of the financial crisis. But the final remnants of taxpayer control have been sold, profits are booming, and the board is showering investors with dividends and share buybacks too.
In February last year, NatWest reported 2024 operating profit before tax of £6.2bn, with a healthy 17.5% return on tangible equity (RoTE). Investors are reaping the rewards, with the board distributing £4bn through dividends and buybacks, and hiking dividends per share by 26%. It now plans to increase its dividend payout ratio from 40% to 50%. The trailing yield has fallen to 3.25%, thanks to share price growth, but is forecast to hit 5.2% in 2026 as a result.
Investors loved it. The NatWest share price jumped a staggering 65% during 2025 and is up a scarcely believable 200% over two years.
Despite its stellar run, NatWest still doesn’t look too expensive. The forward price-to-earnings ratio is just 12.7, although the price-to-book value has nudged up to 1.2.
Momentum is on its side but there are risks. Interest rates are falling, and this could squeeze margins, while the UK economy isn’t out of the woods yet. Plus a wider stock market crash would do the usual damage. However, I still think NatWest shares are well worth considering with a long-term view, giving investors time to ride out economic bumps, interest rate changes, and regulatory scrapes.
NatWest shares are flying
High dividend income isn’t limited to banks and other financials. Oil & gas, consumer staples, tobacco stocks, and industrials are all showing robust payouts. Even mid-cap shares such as housebuilders offer appeal.
Spreading money across sectors gives a cushion while still allowing for capital and income growth. Ten years of patient investing can turn income stocks into a surprisingly powerful wealth-building tool. Right now, the UK market is offering a rare chance for investors to secure both growth and dependable dividends. I can see loads more income stocks I’d like to buy today.
