In this article, we will take a look at some of the best FTSE dividend stocks to buy now.
In recent years, investors have shown a preference for global stocks, particularly high-growth options like US technology companies, over UK equities. Over the past decade, the British index has achieved a 6% annual total return compared to 13% for the US broader market. Analysts suggest that this underperformance is partly due to weak earnings, domestic political instability, and the absence of a significant technology sector in the UK market. However, a notable factor is the sharp decline in valuations as investors have steered away from UK stocks. Goldman Sachs remarked that the challenge is not a lack of interest from foreign investors, who currently hold about two-thirds of the UK market capitalization, but rather the limited participation of domestic investors in UK equities.
That said, investing in UK stocks can still be a worthwhile choice. While the UK market lacks significant technology companies, its equities in sectors like finance, energy, and mining provide diversification opportunities that complement the tech-heavy and highly valued US markets. In addition, the UK’s index faces less risk from tariffs and trade restrictions. Goldman Sachs Research highlighted that UK equities could gain from various government measures, such as pension reforms aimed at boosting domestic investment in UK stocks and policies supporting homebuilding initiatives.
Lindsay Matcham, involved in futures sales trading at Goldman Sachs Global Banking & Markets, suggested that UK equities could appeal to investors seeking diversification. She noted that these stocks offer attractive valuations, strong dividend yields, and reduced concentration risk.
Russ Mould, investment director at AJ Bell, presented a rather interesting take on the UK market’s limited exposure to technology stocks. He pointed out that this reduced exposure has made the UK stock market less volatile compared to the US, where technology stocks are a key driver of market fluctuations. Mould observed that, despite its criticisms, the UK market experienced a relatively stable summer compared to the US, attributing this to differences in valuation and the relative expectations of the two markets.
The lower volatility in the UK market presents compelling investment opportunities, particularly given its attractive dividend yields. The FTSE 100 offers a yield of 3.68%, while the FTSE 250, representing medium-sized UK firms, provides slightly lower but still appealing income prospects. This setup allows investors to explore higher-growth sectors, such as smaller companies while benefiting from rising dividends. According to BlackRock, UK dividends are currently growing at a rate of 2-3%, aligning with long-term inflation. Stocks that consistently grow their dividends often have stable cash flows, enabling them to increase payouts over time.
Janus Henderson’s 2023 annual dividend report highlighted this upward trend, revealing that UK dividends reached approximately $86 billion in 2023, a significant rise from the $63.1 billion distributed in 2020. Given this, we will take a look at some of the best FTSE dividend stocks.
Photo by Karolina Grabowska: https://www.pexels.com/photo/hands-holding-us-dollar-bills-4968630/
Our Methodology:
For this list, we reviewed the UK CCC Dividend list, which highlights UK companies with the longest histories of dividend growth. This list is based on the structure of David Fish’s US Dividend Champions spreadsheet and serves as a useful tool to help identify and screen dividend growth stocks in the UK. From this list, we chose 10 stocks with the highest dividend yields as of December 29 and arranged them in order from lowest to highest yield. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 900 as of Q3 2024.
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).
10. Pentair plc (NYSE:PNR)
Dividend Yield as of December 29: 1.01%
Pentair plc (NYSE:PNR) is an American water treatment company based in the United States, but it is incorporated in Ireland and has its tax residency in the UK. The company is attracting increased interest from investors due to the rising demand for water solutions. The company’s business model aligns with global efforts to address environmental challenges and work towards carbon neutrality. The stock has surged by over 39% in the past 12 months.
In the third quarter of 2024, Pentair plc (NYSE:PNR) reported revenue of $993.4 million, which fell slightly by 1.5% from the same period last year. However, the revenue beat analysts’ estimates by $5.02 million. The company’s operating income for the quarter came in at $180 million, which was flat on a YoY basis. It has revised its full-year 2024 GAAP EPS forecast to around $3.70 and raised its adjusted EPS guidance to approximately $4.27.
Pentair plc (NYSE:PNR)’s cash position came in strong during Q3 2024. The company reported an operating cash flow of $249 million, up from $162 million in the prior-year period. Its free cash flow also jumped to $234 million, from $143 million in the same quarter last year. On December 17, the company declared an 8.7% hike in its quarterly dividend to $0.25 per share. Through this increase, the company stretched its dividend growth streak to 49 years, which makes it one of the best dividend stocks on our list. The stock offers a dividend yield of 1.01%, as of December 29.
The number of hedge funds tracked by Insider Monkey owning stakes in Pentair plc (NYSE:PNR) grew to 47 in Q3 2024, from 40 in the previous quarter. These stakes are worth over $1.7 billion in total. Among these hedge funds, Impax Asset Management was the company’s leading stakeholder in Q3.
9. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Dividend Yield as of December 29: 1.12%
Willis Towers Watson Public Limited Company (NASDAQ:WTW) is a London-based insurance company that offers a wide range of related services to its consumers. On December 20, Jefferies upgraded the stock to Buy from Hold. According to the firm, as the company works to close the free cash flow margin gap with its peers through structural changes and margin improvements, it is expected that the valuation gap will also decrease, resulting in a price target of $382, representing a 24% upside. In the past 12 months, the stock has delivered an over 31% return to shareholders.
In the third quarter of 2024, Willis Towers Watson Public Limited Company (NASDAQ:WTW) generated $2.29 billion in revenues, which showed a 5.7% growth from the same period last year. The revenue also surpassed analysts’ estimates by $871,000. The company’s operating income came in at $414 million, up from $351 million in the prior-year period.
Willis Towers Watson Public Limited Company (NASDAQ:WTW) demonstrated a strong cash position during the year. In the first nine months of 2024, the company reported an operating cash flow of $913 million, up from $823 million at the end of September 2023. Its free cash flow amounted to $807 million, growing from $707 million on a YoY basis. During this period, the company returned $265 million to shareholders through dividends.
On December 11, Willis Towers Watson Public Limited Company (NASDAQ:WTW) declared a quarterly dividend of $0.88 per share, having raised it by 4.8% earlier this year. This marked the company’s ninth consecutive year of dividend growth, which makes WTW one of the best FTSE dividend stocks on our list. As of December 29, the stock supports a dividend yield of 1.12%.
At the end of Q3 2023, 42 hedge funds tracked by Insider Monkey held stakes in Willis Towers Watson Public Limited Company (NASDAQ:WTW), compared with 47 in the previous quarter. These stakes have a collective value of over $2 billion.
