There will be a lot of happy faces across the UK on the morning of Friday 2 June as a hefty amount of money is added to ISAs and SIPPs (self-invested personal pensions). That’s the day when the UK’s largest listed utility company, National Grid (NG.), gives its shareholders a combined £3.2bn present.

The FTSE 100 constituent will return a significant chunk of cash to shareholders as a special dividend after selling a 61% stake in its gas distribution networks.

You needed to have been on the shareholder register on 19 May to qualify for the special dividend which is 84.375p per share.

If you owned 10,000 shares in the company on 19 May, for example, you will receive £8,437.50 as a special dividend.

This money is on top of the 29.1p per share ordinary dividend for the second half of its financial year which will be paid on 16 August.

Investors could just pocket the cash and perhaps put it towards a holiday or new car. But if you would rather put that money to work, there are several options with UK stocks.

First, you could buy more National Grid shares. This is a reasonable choice in our opinion, particularly as its business model hasn’t changed after selling a majority stake in its gas distribution networks.

Some investors may prefer to diversify into alternative stocks with similar income bearing attractions.

Energy suppliers SSE (SSE) and Centrica (CNA), which owns British Gas, both offer prospective income yields of around 6%.

The downside with these stocks is a threatened energy price cap by the Conservative party. A Tory victory at the forthcoming general election could create uncertainty over future returns for the utility sector which could weigh on SSE and Centrica’s shares prices.

Water group Pennon (PNN) might be a different stock to consider. It has stable regulated earnings balanced with faster growth from its waste disposal business Viridor. Pennon’s shares currently offer a 4% prospective dividend yield.

Investors could follow the lead of UK equity income funds and buy big oil. BP (BP.) and Royal Dutch Shell (RDSB) are, on average, the two most commonly held shares by the 25-odd UK equity income funds.

Other popular picks among income fund managers include cigarette manufacturer British American Tobacco (BATS), pharmaceutical giant AstraZeneca (AZN), and mobile network Vodafone (VOD).

These stocks offer prospective dividends yields of between 3.2% (British American Tobacco) to 6.7% for Royal Dutch Shell.

You calculate a prospective yield as follows: forecast dividend per share for the current financial year divided by the latest share price, multiplied by 100.

It is worth stressing that none of the aforementioned companies guarantee they will pay dividends every year nor pay the exact amount forecast by analysts. (SF)

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