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 Schroders plc (LON:SDR.L) 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 This inflow marks a notable shift, ending 41 consecutive months of net outflows, during which over £25 billion was withdrawn since May 2021.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 senior executive at Sprott Asset Management USA Inc. contemplating market changes and his future investments.
Schroders plc (LON:SDR.L)
Dividend Yield as of December 28: 6.86%
Schroders plc (LON:SDR.L) is a London-based multinational asset management company. It offers a wide range of investment solutions to its consumers. The stock has underperformed this year, as challenges in the broader active fund management sector weighed it down. In addition, the growing popularity of index funds continues to put pressure on active managers like Schroders, creating uncertainty for 2025. Given this trend and the stock's poor performance during a global bull market, analysts are doubtful about its ability to recover next year. In the past 12 months, the stock has declined by over 28%.
Despite these ongoing challenges, Schroders plc (LON:SDR.L) reported solid first-half earnings. The company's assets under management reached a record high of £773.7 billion. Wealth Management continued to perform strongly, achieving 7% growth in advised assets. In Schroders Capital, positive net new business was recorded across all four private market sectors. Moreover, mutual fund net new business saw an increase in the first half, with particularly strong momentum in fixed income. There was also notable asset growth in some of the company's joint ventures, especially in China. On the cost side, operating expenses were reduced by 1% year-on-year, reflecting the company's continued focus on cost discipline.
Schroders plc (LON:SDR.L) continued to deliver strong performance for its clients in the long term. Over the past year, 69% of its assets have outperformed their respective benchmarks, compared to 56% at the end of the previous year. Over a three-year period, 62% of its funds have outperformed their benchmarks.
In the first half of the year, Schroders plc (LON:SDR.L) returned £101 million to shareholders through dividends, which makes it one of the best FTSE dividend stocks on our list. Currently, the company offers an interim dividend of £0.065 per share and has a dividend yield of 6.86%, as of December 28.
Overall SDR.L ranks 1st on our list of the U.K. dividend aristocrats. While we acknowledge the potential of SDR.L 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 SDR.L but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
