It’s easy to see why UK dividend investors typically head straight for FTSE 100 shares. Financially strong businesses with diverse income streams and market-leading positions often translate into large and reliable dividends. It’s possible to build a robust portfolio of dividend shares just with companies from the Footsie.

I myself hold several high-yield FTSE 100 stocks like Legal & General and Aviva in my portfolio. But my search for passive income doesn’t end there. I buy dividend shares from across the London stock market — this way, I can find undervalued shares that the market has overlooked.

A top penny stock

Searching off the beaten path is even more important today. The reason why? As the FTSE 100 has rallied (up 40% over three years), dividend yields across the index have plummeted.

By contrast, many quality companies continue to offer juicy yields of 6% or above. Take Topps Tiles (LSE:TPT), a penny stock I bought for my Stocks and Shares ISA in July.

Topps is the UK’s leading supplier of tiles for construction companies, tradespeople and DIY. However, weak conditions in the housebuilding sector have smacked its share price of late, driving its dividend yield to 8.6%. A faltering share price could remain a problem going forward.

Buying the dip

But here’s the thing. Topps has remained largely resilient despite these pressures (like-for-like sales declined just 0.1% in the 12 months to September). And I’m optimistic its share price will recover eventually when interest rates normalise again, boosting new home construction and consumer confidence.

In the meantime, investors like me can expect a steady stream of healthy dividends to roll in. Its pureplay online and trade channels are outperforming the broader industry, and expansion in these areas should continue supporting profits. Extensive cost-cutting that’s generating £6m of annual savings is also shoring up the balance sheet.

Just be mindful that expected dividends are covered just 1.6 times by anticipated earnings. This is below the safety benchmark of 2, and may make it unsuitable if you like more robust UK income shares.

An 7.6% income opportunity?

If you fall into that category of investor, it’s not necessarily a problem. There are plenty of other super-stable dividend stocks outside the FTSE 100 to consider. Let me introduce you to James Halstead (LSE:JHD), which has raised payouts for 49 straight years.

Like Topps Tiles, this business operates in a highly cyclical industry, providing flooring for residential and commercial properties. Yet Halstead has secure financial foundations that help it grow its sizeable dividends even during downturns. With net cash rising to £70.8m as of March, this record looks set to continue, even if market conditions remain tough.

And that’s not all. Roughly two-thirds of commercial business comes from publicly funded properties like hospitals and schools, where spending is less volatile from year to year. This not only supports the company’s sales — it also boosts Halstead’s enormous profits margins, and by extension its exceptional cash generation.

Tough end markets have held back James Halstead’s share price in recent times. This may continue in the near term. Stress on public infrastructure spending is another notable danger. However, with a huge 7.6% yield and excellent payout record,I still think it’s a top UK dividend share to consider.

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Royston Wild owns shares in Topps Tiles, Aviva and Legal & General.