Friday, May 17, 2024

UK Dividend List

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The world is moving into a new high interest rate environment and as investors, we should be demanding higher dividends. Today we are looking at UK's dividend plays. The UK is one of the few countries in the world with no withholding tax on dividends. The other is Singapore. Today, we shall take a look at what are the good UK dividend stocks using our favorite poems screen.

The usual poems screen with idiosyncratic cut-offs like 8.5% ROE 

As per previous years, we have used the above screen with ROEs, ROAs and Operating Margins driving the screen. The UK list this year generated 20 odd names. Many of which had been discussed here: Reckitt, Diageo, BHP amongst others. They are still here because they have not outperformed. The market has been very focused on the Magnificent Seven and similar stocks such that the rest of the good old names are forgotten. We believe the above names are compounders and the investment theses described are still intact.

Good UK names

The other top names are also worth mentioning. Unilever and its closest rival Nestle have also been good compounders currently trading at reasonable valuations. Rio Tinto is similarly another version of BHP. We all remember BP and Deepwater Horizon. Amazingly, it rebounded 2x from there, collapsed near those lows during the pandemic and is now almost at all time high! It appears on this screen because cyclical names like oil majors have good ROEs at the peak. So this is not a call to buy BP. 

BP's share price

The flavor on fossil fuel names have also changed with Greta Thunberg and her environmentalist gang shaming our generation and companies destroying the planet. Stocks like BP and miners are unable to command good premiums and hence the high dividend. The other name that falls into the same category is Imperial Brands (formerly known as Imperial Tobacco).

Burberry looks really interesting with its share price almost halving in a couple of months. It is very rare to see a luxury name on such lists. We have done the due diligence so there are no good analysis why the stock tanked and whether it is a good buy today. It does look reasonable on 14.7x PER, 6.8x EV/EBITDA and free cashflow c.7%. If it gets cheaper, LVMH will snap it up in a snap!

Burberry's share price

That said, works need to be done. This author had never bought well buying something on three sentences of analysis. But perhaps some readers have the luck and if you do make money please report back!

Huat Ah!

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