To be ‘motley’ is to express different opinions. They don’t have to agree with each other, and they certainly don’t have to parrot a single company line! The more views we are able to put forwards, investors are better able to consider multiple sides to the investing argument. And when they do that, they usually make more informed decisions! For those investors interested in dividend shares, we hope this compilation article helps your own decision-making when it comes to picking stocks… Fool on!
Consumer goods
By Roland Head. Looking ahead to next year, I expect many of the consumer defensive stocks listed on the London market to continue delivering rising dividends.
These businesses are all about slow and steady progress, selling small-ticket items that are habitual purchases. I’m talking about companies like Tesco, Unilever, British American Tobacco, or soft drinks firms like Britvic, AG Barr, and Nichols.
To be clear, I don’t think these companies will necessarily deliver the biggest dividend increases in the market next year. Nor do they offer the highest yields. The average yield from this sector at the moment is about 3.5%.
There’s also some risk that companies such as Unilever might continue to suffer as consumers trade down to cheaper own-brand products.
However, one of the main attractions of this sector for me is its dependability. Most of these businesses have been trading for many decades – sometimes over 100 years. They have been through tough patches before.
Many of them also have fairly prudent dividend policies. When coupled with good cash generation, this allows them to increase their payouts, even in a poor year.
I reckon many of these stocks look reasonably priced. I’ve been adding a few more to my portfolio recently.
Roland Head owns shares in Unilever.
Financials
By Alan Oscroft. It looks like 2024 should be another good year for FTSE 100 dividends. And I see the financial sector as the most likely to get the biggest lift.
That’s down to forecasts for profit rises in 2023 and beyond.
According to research by AJ Bell, pre-tax profit from top financial stocks is set to rise by a total of £30.8bn this year. That dwarfs anything else, and accounts for the lion’s share of the FTSE 100’s total expected net gain.
If the analysts are right, the index should hit a new all-time high, breaking the record set in 2022.
Hmm, and investors are running scared from UK shares right now? It doesn’t make any sense to me.
Dividend yields from banks, insurance firms, and the rest of the financial sector are high. And the cash looks like it should be comfortably covered by earnings.
Look at HSBC Holdings, for example.
There’s a forecast yield of 7% for 2023. And forecasts suggest cover by earnings of more than two times.
Other stocks, like insurer Legal & General, don’t have such great cover. But yields are still high, and the earnings growth outlook is positive.
Alan Oscroft has no position in AJ Bell, HSBC Holdings, or Legal & General.
Property
By Jon Smith. I believe the property sector will be a top area where stocks will increase dividend per share payments in 2024.
This view stems from the opinion that interest rates in the UK have peaked and that rate cuts will be seen next year. This should help to make borrowing less expensive and reduce mortgage rates. Cuts should also coincide with lower inflation, further helping to boost demand as consumers and businesses alike feel more confident in making large purchases (such as property).
I feel that real-estate investment trusts (REIT) could increases dividends as tenant demand increases, with Land Securities Group being an example. Homebuilders such as Taylor Wimpey should also benefit as the order book fills up and the average selling price of properties starts to tick higher.
The main risk to my view is if I’m too early in the turn of the economic cycle. Should interest rates remain higher for longer, 2024 might not be the year where property outperforms.
However, given the depressed level of some property-related stocks, the current dividend yields look attractive. Therefore, I’m not overly concerned about buying now and having to sit on my hands for more than a year before positive momentum kicks in.
Jon Smith has no positions in any shares mentioned.
Tobacco
By Christopher Ruane. Tobacco has historically been a very lucrative sector when it comes to dividends.
As income investors know all too well, however, past performance is not necessarily a guide to what will happen in future.
Payouts are never guaranteed and tobacco faces a threat to its core business. Cigarette sales are declining in many developed markets. That helps explain why Golden Virginia owner Imperial Brands lopped a third off its dividend in 2020.
But while the cigarette business is in decline in many markets, it remains huge. I also think there is a hard core of smokers likely to persist, giving companies strong pricing power.
On top of that, new formats like vaping mean that tobacco companies could grow total sales volumes in years to come. Meanwhile, companies like British American Tobacco and US peer Altria generate massive free cash flows from cigarettes. Those continue to support mid single digit percentage annual dividend increases. Both have raised their dividend annually for decades.
Falling cigarette sales and an unproven profitability model for vaping are risks to the payouts. But in 2024 and the next few years, I expect many tobacco companies to keep raising their dividends substantially.
Christopher Ruane owns shares in British American Tobacco and Altria.
