3 High-Yielding U.K. Dividend Stocks Hedge Fund Managers Love
The Bank of England decided to hold rates at its meeting this week, but a cut is in the near future. In fact, rates aren’t expected to rise until the end of the decade – maybe later. With interest rates at an all-time low, dividend stocks are more attractive than ever.
Here are three high-yielding U.K. dividend stocks to add to your portfolio:
1. Persimmon (L: PSN)
Britain’s housing market took a hit after the Brexit vote, and Persimmon, one of the largest home builders in the U.K., wasn’t immune to the blow.
Right now, the company’s share price is down 20% compared to last month, but things are starting to turn around. The stock has rallied 20% in a week, as investors shake off their nerves and turn their focus to fundamentals. Persimmon has little debt and a strong balance sheet, which means it can better weather the storm than other builders.
The top house builders in Britain, including Persimmon, Barratt (L: BDEV), Taylor Wimpey (L: TW) and Berkeley (L: BKGH), lost a combined 8 billion pounds of their market value following the Brexit vote.
But Persimmon is in a better position to cope with the turbulence. The company had 1.36 billion pounds in forward orders at the end of June.
The company also offers a return of 5.5 pounds per share, and plans to maintain that return until at least 2021.
Persimmon also recently announced that completions were up 6%. The company completed 7,238 units in the six months ended June 30. The home builder said it had “good levels” of sales in the months of May and June.
2. HSBC Holdings (L: HSBA)
HSBC Holdings has weathered the storm well, and shares are up 10% compared to one month ago. While local UK banks are struggling, HSBC has held steady – thrived even – because 75% of its revenues is derived from outside of Europe.
While cover has fallen to just 1.3%, it was 1.7% in 2013, HSBC still offers an impressive 8.2% dividend.
There was speculation in February that the bank’s dividend would not be sustainable after HSBC posted an $858 million pre-tax loss. Despite the loss, HSBC raised its dividend, albeit at a slower pace.
In the short-term, investors may shy away from HSBC’s stock. EPS forecasts point to another 15% dip this year after falling in 2014 and 2015. In the long-term, however, the bank projects a 6% rise next year.
Nevertheless, investors will still want to be cautious with this stock. The Bank of England will likely cut rates at its next policy meeting in August, and those rates aren’t likely to rise anytime soon. And with so many political uncertainties in Britain, HSBC’s net margins will face increased pressure in the coming months.
With that said, managers will most likely sustain the dividend so as not to upset investors.
3. Legal & General Group (L: LGEN)
The road has been rough for Legal & General Group, a leading U.K. insurance company, following the Brexit vote. The company’s share price is down 15% from last month. Market players are worried about sluggish global and domestic demand, which has hit the insurance sector rather hard.
Legal & General somehow missed the post-Brexit bounce, and the company is still generating new growth opportunities through lifetime mortgages and annuity sales.
So far, Brexit has had little effect on the company, but if new Prime Minister Theresa May invokes Article 50, things may change.
Legal & General stock boasts a 7.2% yield with 1.4 times cover. EPS growth has been in the double digits for the last four consecutive years. Growth is only expected to be slightly lower this year, at 9%, and 6% in 2017.
Legal & General also boosted its shares in BlackRock Inc. (NYSE: BLK) in the first quarter, now owning 0.32% of the company.
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