The FTSE 100 continues to underperform comparable international indices, sliding by 0.6% year-to-date to 7,673 points. While investors in some of the high yielding dividend stocks on the index have of course benefitted from company payouts, improving the life of the London markets has been a central theme of 2024.
In today’s budget, Chancellor Jeremy Hunt has — among many measures — introduced the ‘British ISA,’ which will allow UK-based investors an additional £5,000 allowance on top of the current £20,000, which can only be invested specifically in ‘UK companies.’
Quite how this might work, and how long it might be until the account is widely available, will be common questions over the next few days. But the key takeaway is that the government is trying to spur internal investment, in an attempt to stem UK delistings, the IPO drought, and continued private equity bids for ‘undervalued’ businesses listed in London.
On the macroeconomic front, the base rate remains at 5.25%, while CPI inflation stands at 4%, double the official target. While inflation is now expected to hit 2% within the next few months, the Bank of England has warned it will then resurge due to moving comparators with energy bills. While rates may start to fall later in the calendar year, Governor Andrew Bailey has previously warned he wishes to see sustained low inflation before beginning cuts.
This all makes investing in FTSE 100 dividend stocks complex. In particular, the highest dividend yields can be hostage to economic policy — where individual investment cases and changing financial landscapes can create value traps or payout irregularities.
Best FTSE 100 dividend stocks to watch
These shares are the highest yielding on the index as of 1 March 2024. They may not be the best investments and the dividends and capital itself are not guaranteed.
- Vodafone
- Phoenix Group
- British American Tobacco
- Imperial Brands
Vodafone
Vodafone's recent Q3 results saw total organic revenue grew by 4.7%, a significant improvement on the 1.8% growth of a year ago. Meanwhile, global services revenue rose by 8.8% while the B2B division grew by 5% year-over-year.
The company remains one of the largest telecoms companies in Europe, and the current strategy may be delivering. For context, the all-important German sales rose by 0.3% in the quarter. However, the company is actually losing customers in the region, with the revenue growth driven by price increases.
The key risk could remain the debt mountain, which remains multiples of Vodafone’s market capitalisation. However, the company has made several asset disposals to counter this risk — and is actively considering further sales of its Italian arm.
Vodafone remains confident in previous guidance for future underlying earnings — and with a price to equity ratio of just 2 (despite this figure being affected by asset sales), it may be attractive to value investors.
Dividend Yield: 10.94%
Phoenix Group
Phoenix Group's recent trading update saw the company deliver £1.5 billion of new business long-term cash generation in 2023, achieving its 2025 target much earlier than expected.
For context, new business net fund inflows rose by circa 80% year-on-year to £7 billion, driven by improved performances at the Standard Life branded Pension & Savings and Retirement Solutions segments.
CEO Andy Briggs remains ‘delighted that Phoenix Group has delivered another year of strong organic growth in 2023, with increased new business net fund flows supporting us… we have achieved our 2025 new business long-term cash target two years early, reflecting the focus and investment we have put into our growth strategy.’
Within pensions and savings, Phoenix’s workplace business saw net fund flows nearly double year-over-year to circa £4.5 billion. According to Briggs, this included ‘the transfer of one of the largest workplace schemes tendered in the UK market in recent years.’
Dividend Yield: 10.49%
British American Tobacco
British American Tobacco full-year results saw the FTSE 100 dividend company’s revenue fall by 1.3% at constant currency rates, though rise by 3.1% on an organic basis at constant rates. This was driven by ‘new categories’ growth with revenue from non-combustibles now worth 16.5% of group revenue.
CEO Tadeu Marroco enthuses that ‘2023 was another year of resilient financial performance and delivery in line with our guidance, underpinned by our global footprint and multi-category strategy, despite a challenging macro-environment. New Categories delivered continued volume-led revenue growth and increased profitability.’
However, the FTSE 100 tobacco company will have to pivot fast, having written off £27.3 billion of its US brand portfolio after acknowledging they have ‘no long-term future.’ Compounding the weak combustibles growth, the UK recently announced a ban on disposable vapes which could hit BATS’ long-term ambitions in non-combustible categories — and is also imposing a specific vaping tax as well. This could hit margins if similar legislation is adopted more broadly.
Positively, the titan and competitor Philip Morris International have finally agreed an eight-year long resolution to long running patent disputes on their cigarette alternatives technology.
Dividend Yield: 10.22%
Imperial Brands
Imperial Brands is the second FTSE 100 tobacco stock — and faces many of the same issues as BATS: regulatory clampdowns and changing consumer habits.
However in recent results, the company saw adjusted operating profit grow in line with its five year plan, including 10 basis points aggregate market share growth in its top-five priority combustible tobacco markets.
Further, next generation product net revenue rose by 26% — and increased by a whopping 40% in Europe. Accordingly, the dividend was hiked by 4% alongside a 10% increase in share buybacks, leaving investors with total FY24 returns of £2.4 billion.
CEO Stefan Bomhard enthuses that ‘means we are well placed to deliver on our commitment to enhance returns to investors, with increases to both our dividend and buyback programme. Looking ahead, we expect the continuing benefits of our transformation to enable a further acceleration in our adjusted operating profit growth in the final two years of our five-year strategy.’
Dividend Yield: 8.81%
M&G
In September’s half-year results, increased its interim dividend by 5% to 6.5p per share. For context, it saw positive net client inflows of £700 million — remaining positive into a third consecutive year. M&G also saw operating capital generation rise by 17% year-over-year to £505 million, driving adjusted operating profit 31% higher to £390 million.
M&G plans to generate operating capital amounting to £2.5 billion by the end of 2024 and had achieved more than 50% of this three-year target, 18 months in. Moreover, its shareholder Solvency II Coverage ratio remains at the top end of the target range at 199%, with no defaults in the first half of the year.
CEO Andrea Rossi enthused that the results ‘demonstrate the underlying strength of our business model, the resilience of our balance sheet… we have made progress against all three pillars of the strategy that we launched in March.’
Full-year results will be released on 21 March 2024.
Dividend Yield: 8.71%
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