We recently compiled a list of the U.K. Dividend Aristocrats List: 2024 Rankings by Yield.In this article, we are going to take a look at where Unilever PLC (NYSE:UL) stands against the other U.K. dividend aristocrats.
In recent years, investors have turned away from UK equities, opting instead for global stocks, particularly high-growth options like US technology companies. The UK stock market is contracting at its fastest rate in over a decade, driven by takeovers of London-listed companies. According to Bloomberg data, approximately 45 companies have been delisted from the London market this year due to mergers and acquisitions, representing a 10% increase compared to the total for last year. This marks the highest number of delistings since 2010. Meanwhile, the value of deals targeting UK companies has surged by 81% this year, exceeding $160 billion.
Earlier this year, UK equities seemed to be experiencing a shift in sentiment among both large institutions and smaller investors. The British stock market continues to attract bargain hunters, as UK equities are now trading at a record discount of over 40% compared to global counterparts, based on Bloomberg data. Many of the takeover targets have been mid-cap companies listed on London’s AIM market, which typically feature low trading volumes and limited analyst attention.
That said, in November, investors returned to UK equity funds after three and a half years of consistent monthly withdrawals and a significant sell-off ahead of the Budget. Data from Calastone shows that retail investors directed a net £317 million into funds focused on UK stocks during the month. This inflow marks a notable shift, ending 41 consecutive months of net outflows, during which over £25 billion was withdrawn since May 2021.
The change in investor sentiment follows a challenging October for equity funds, which experienced record outflows as UK investors withdrew their money due to fears that the chancellor would raise capital gains tax (CGT). At the end of October, during the Budget announcement, Chancellor Rachel Reeves confirmed an immediate CGT increase. The lower rate rose from 10% to 18%, while the higher rate climbed from 20% to 24%.
Analysts suggest the UK stock market could be nearing a recovery, but the timing and pace of this turnaround remain uncertain. This is where dividend stocks play a key role. Prioritizing stocks with rising dividends can offer stability and consistency through different market cycles. In addition, they provide an opportunity for long-term growth, compounding returns over time until share prices rebound. The UK market offers one of the highest dividend yields among major markets. The FTSE 100 boasts a yield of 3.68%, while the FTSE 250, representing medium-sized UK companies, offers slightly lower yields but still provides attractive income opportunities. This allows investors to focus on higher-growth areas, such as smaller companies, while benefiting from increasing dividends. According to a report by BlackRock, currently, UK market dividends are growing at a rate of 2-3%, roughly in line with long-term inflation. Stocks with growing dividends typically have reliable cash flows, enabling them to increase payouts over time.
Janus Henderson’s 2023 annual dividend report confirmed the rise in dividend growth, noting that the UK distributed approximately $86 billion in dividends in 2023, a notable increase from the $63.1 billion paid out in 2020. Given this, we will take a look at some of the best FTSE dividend stocks according to yield.
Our Methodology:
For this list, we scanned over 40 holdings of the UK Dividend Aristocrats ETF, which tracks the performance of the highest-yielding UK companies with at least 7 consecutive years of dividend growth. From this list, we chose 10 stocks with the highest dividend yields as of December 28 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).
A supermarket shelf overflowing with a variety of fast-moving consumer goods.
Dividend Yield as of December 28: 3.25%
Unilever PLC (NYSE:UL) ranks fourth on our list of the best FTSE dividend stocks. The London-based multinational consumer goods company offers a wide range of related products. The company has shelved its efforts to sell its €15 billion ice cream division to private equity firms and will now prioritize plans for an independent public listing of the unit. In March, the consumer goods giant revealed its intention to separate its ice cream business. It sought to attract interest from private equity buyers for the division, which features well-known brands like Ben & Jerry’s, Magnum, and Wall’s. The stock has surged by 18.5% in the past 12 months.
In the first half of 2024, Unilever PLC (NYSE:UL)’s sales on an underlying basis rose by 4.1%, supported by a third straight quarter of positive and improving volume growth. Pricing adjustments aligned with expectations, showing a gradual moderation. Enhanced gross margins allowed for increased investment in innovative initiatives, leading to a noticeable improvement in overall profitability. The company’s operating profit of €6.1 billion, grew by 17.1% from the same period last year.
Hotchkis & Wiley Funds highlighted Unilever PLC (NYSE:UL)’s strong performance in its Q3 2024 investor letter. Here is what the firm has to say:
“Unilever PLC (NYSE:UL) is one of the world’s leading suppliers of consumer goods in the food, home care, and personal care categories, maintaining #1 or #2 market share over 75% of its business. With a new CEO and the involvement of an activist investor (Trian), Unilever is focused on execution and consistency, expecting low to mid-single digit volume-driven top line growth over the medium term, profit growth ahead of sales growth due to operating leverage and mix, and consistent return of cash to shareholders. Additionally, the company has announced plans to separate the Ice Cream business (13% of 2023 sales), which is expected to be completed by the end of 2025 and increase organic sales growth to 4-6% annually. Over the last quarter, the stock price reached a five-year high, as the company has continued to execute the plans laid out above. Unilever has not yet released their official third quarter results but has reiterated their confidence in achieving 3-5% organic sales growth for the full year, with the majority of this growth being driven by volume.”
Unilever PLC (NYSE:UL) also reported a strong position in its cash segment. Its free cash flow for the period came in at €2.2 billion. The company ended the first half with €4.97 billion in cash and cash equivalents, compared with €4.1 billion at the end of December 2023. It currently offers an interim dividend of £0.3696 per share and has a dividend yield of 3.25%, as of December 28.
According to Insider Monkey’s database of Q3 2024, 22 hedge funds held stakes in Unilever PLC (NYSE:UL), up from 21 in the preceding quarter. These stakes are worth nearly $2 billion in total. Ken Fisher’s Fisher Asset Management was the company’s leading stakeholder in Q3.
Overall UL ranks 4th on our list of the U.K. dividend aristocrats. While we acknowledge the potential of UL 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 UL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
