We recently compiled a list of the U.K. Dividend Champions List: 2024 Rankings by Yield. In this article, we are going to take a look at where AstraZeneca PLC (NASDAQ:AZN) stands against the other U.K. dividend champions.
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.
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).
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AstraZeneca PLC (NASDAQ:AZN)
Dividend Yield as of December 29: 2.24%
AstraZeneca PLC (NASDAQ:AZN) ranks seventh on our list of the best FTSE dividend stocks. The multinational pharmaceutical and biotech company specializes in a wide range of innovative medicines. The stock is popular among income investors because of its solid cash position. In the first nine months of the year, the company generated nearly $9 billion in operating cash flow, an increase from $7.9 billion during the same period last year. By the end of the quarter, it had approximately $5 billion in cash and cash equivalents. The company has consistently paid dividends to shareholders for 32 years. It currently offers an interim dividend of $1.00 per share, with a dividend yield of 2.24%, as of December 29.
Despite AstraZeneca PLC (NASDAQ:AZN)’s strong cash position providing some flexibility, its stock has fallen by more than 3% in 2024 due to various challenges. Recently, its operations in China were impacted after the company’s president in the region, Leon Wang, and several other senior executives were arrested as part of fraud investigations. As a result, AstraZeneca expects a drop in sales in China, which is one of its important international markets.
However, AstraZeneca PLC (NASDAQ:AZN) produced solid results in the third quarter of 2024 that boosted investor confidence. Revenue rose 18% year-over-year, totaling $13.6 billion. Adjusted earnings per share were $2.08, marking a 20% increase from the same period last year. The company’s oncology division, its largest, generated $5.6 billion in sales during the third quarter, a 19% increase compared to the previous year. Parnassus Investments also highlighted this in its Q2 2024 investor letter. Here is what the firm has to say:
“AstraZeneca PLC (NASDAQ:AZN) gained after announcing robust first-quarter results and setting 2030 targets at an Investor Day that were above consensus expectations. We continue to believe that AstraZeneca’s robust pipeline and industry-leading innovation in oncology should support above-expectation revenue growth for the next several years.”
AstraZeneca PLC (NASDAQ:AZN) was included in 42 hedge fund portfolios at the end of Q3 2024, compared with 49 in the previous quarter, according to Insider Monkey’s database. The stakes owned by these hedge funds are worth nearly $2 billion in total.
Overall AZN ranks 7th on our list of the U.K. dividend champions for 2024. While we acknowledge the potential of AZN 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 AZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.