We recently published a list of 10 Safest Dividend Stocks in the UK. In this article, we are going to take a look at where British American Tobacco p.l.c. (NYSE:BTI) stands against other safest dividend stocks in the UK.
In recent years, investors have increasingly shifted away from UK equities, favoring global stocks, particularly high-growth sectors like US technology. The UK stock market is shrinking at its fastest pace in over a decade, largely due to a wave of takeovers involving London-listed companies. Bloomberg data showed that around 45 firms have been delisted from the London market in 2024 through mergers and acquisitions, reflecting a 10% rise from last year’s total. This marks the highest level of delistings since 2010. At the same time, the value of deals involving UK companies has climbed 81% this year, surpassing $160 billion.
Over the last ten years, the British index has delivered an annual total return of 6%, significantly lagging behind the 13% return of the broader US market. Analysts attribute this weaker performance to sluggish earnings growth, political uncertainty within the UK, and the lack of a dominant technology sector. However, a key factor has been the sharp drop in valuations as investors have increasingly moved away from UK stocks. According to Goldman Sachs, the issue is not a lack of foreign investor interest—who currently account for roughly two-thirds of the UK market capitalization—but rather the low engagement of domestic investors in UK equities.
Also read: 10 Best Annual Dividend Stocks To Buy Now
That said, several factors seem to be contributing to a shift in investor sentiment. In November 2024, UK equity funds saw inflows after more than three years of continuous monthly withdrawals and a large sell-off leading up to the Budget. According to data from Calastone, retail investors invested a net £317 million into UK-focused stock funds that month. This marks a significant change, halting a streak of 41 months of net outflows, during which over £25 billion had been pulled from these funds since May 2021.
Analysts also believe that the UK stock market may be on the verge of recovery, although the exact timing and pace of this shift are unclear. In this context, dividend stocks are crucial. Focusing on stocks with growing dividends can offer stability and consistency across different market conditions. These stocks also provide long-term growth potential, compounding returns as share prices recover. The UK market offers some of the highest dividend yields among major markets, with the “Footsie” yielding 3.46%, and the FTSE 250 offering slightly lower but still attractive yields. This setup enables investors to focus on high-growth areas, like smaller companies, while enjoying the benefit of increasing dividends. According to BlackRock, UK market dividends are currently growing at a rate of 2-3%, roughly in line with long-term inflation. Companies with growing dividends typically have strong cash flows, allowing them to increase payouts over time.
Janus Henderson’s 2023 annual dividend report highlighted a significant increase in dividend growth, revealing that the UK paid out roughly $86 billion in dividends last year, up from $63.1 billion in 2020. Looking ahead, the UK’s stock market index is projected to distribute about £83.6 billion in dividends in 2025, marking a 6.5% rise from the £78.5 billion expected in 2024. Given this, we will take a look at some of the best FTSE dividend stocks.
Our Methodology:
For this article, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 to find FTSE stocks that are also traded on US exchanges. Our focus was on companies that have strong dividend policies and consistently distribute dividends to their shareholders. The stocks are ranked in ascending order of hedge funds’ sentiment toward them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of an array of tobacco products, emphasizing the selection and consumer choice.
British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Holders: 24
British American Tobacco p.l.c. (NYSE:BTI) is a manufacturing company, based in London. The company specializes in cigarettes, tobacco, and various other nicotine products. It is working to reduce its dependence on traditional combustible tobacco by focusing on smokeless alternatives, aiming for these products to make up 50% of its revenue by 2035. The company holds a strong position in the vapor market with its Vuse brand, which controls a 40.3% value share in key markets. In addition, BTI is expanding its footprint in the modern oral segment with its Velo brand. This strategic shift helps the company maintain its leadership in the growing market for tobacco alternatives, ensuring sustainable growth as demand for traditional smoking products declines.
In the first half of 2024, British American Tobacco p.l.c. (NYSE:BTI) saw a 6.8% drop in cigarette sales compared to the same period in 2023, following declines of 5.3% in 2023 and 5.1% in 2022. This persistent downturn significantly impacted the company’s stock, causing its market value to fall by over 40% at one point. However, similar to others in the industry, the company countered the effects of reduced sales by raising prices, which helped boost profits and led to a recovery in its stock price. Despite the decrease in sales volume, the addictive nature of nicotine has helped maintain a loyal customer base.
British American Tobacco p.l.c. (NYSE:BTI) stands out as one of the best FTSE dividend stocks on our list due to its consistent dividend track record. The company forecasts generating around £40 billion (roughly $50.57 billion) in free cash flow over the next five years, excluding dividend payouts. Moreover, it has consistently raised its annual dividend since 2018. The company currently pays a quarterly dividend of $0.7431 per share for an attractive dividend yield of 7.08%, as of February 10.
Overall, BTI ranks 6th on our list of safest dividend stocks in the UK. While we acknowledge the potential for BTI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BTI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
