Outperforming UK "Dividend-Kings"

The recent sell-off in tech has left many traders seeking value, with UK stocks relatively attractive after underperforming over the last few years. Here are some stocks with a history of paying back investors and solid recent performance.

Three UK Dividend Aristocrats With 30-Day Gains

• NatWest Group (NWG) +8.9%
• Unilever (ULVR) +7.5%
• Legal & General (LGEN) +5.5%

Politics and Prices Weigh on UK Stocks

British equities have struggled over the last month amid uncertainty, as easing tensions in the Middle East weighed on the energy and defence sectors, while political drama left investors wary of industrials and consumer firms. The lack of a significant tech presence has meant that UK stocks have struggled to keep up with other global indices. However, this absence could be a strength, as AI-linked stocks took a dive earlier this week amid suspected profit-taking following SpaceX's massive IPO. Investors looking for value might focus on companies with a history of solid dividend payments and strong moats to navigate global uncertainty.

The UK doesn't have "dividend kings" as understood in the American definition. US companies are traditionally very reluctant to cut dividends, as doing so can hurt their share prices. In Britain, companies regularly adjust their dividends based on profitability, so there are no companies that have consistently raised dividends over the last 50 years to meet the US definition. Instead, traders can look for dividend aristocrats or dividend heroes: large UK firms with relatively consistent profits and steady growth that allow for fairly consistent dividend payments. The S&P keeps a list of British firms that have raised payouts to shareholders over the last seven years, and it's much smaller than in America. A brief look at the names shows a wide range of divergence among the constituents, largely weighed down by macroeconomic shifts that have particularly impacted high-end consumer brands. The downturn in China has weighed on apparel and luxury brands, including Diageo. On the other end of the spectrum, strength in banking and insurance has helped propel a handful of stocks higher over the last month, while consumer staples have served as a safe-haven play. Higher interest rates around the world, as central banks combat rising inflation, are favouring financial firms. In contrast, the same inflation puts pressure on consumers, who will spend preferentially on staples and budget-friendly options.  

Higher Yields Support Financials

Among dividend stocks, NatWest and Legal & General stand out for roughly the same reason: sticky inflation numbers in the UK have prevented the BOE from cutting rates as much as anticipated. While such a move would benefit the financial sector in general, NatWest stands out after its strong Q1 earnings and upbeat commentary at the Goldman Sachs European Financials Conference at the start of the month. At the conference, the bank said its mortgage balances were higher than expected in the second quarter, which raised hopes it could outperform rivals. Legal & General's gains continued its solid performance following its annual report, which showed that its pretax profit nearly doubled, and it is outperforming the industry amid strong capital inflows. Unlike rivals that have seen outflows, the company's assets under administration (AUA) rose 21% year over year.

The Safety of Consumer Staples

Even amid market uncertainty, people will still have to buy household essentials, which can explain part of the recent support for Unilever. Investors are turning to consumer staples firms amid rising inflationary pressures, while the global home and personal goods company has been streamlining its operations, having recently successfully spun off its ice cream division. The focus is now on its deal to merge its food business with McCormick and to concentrate on its better-performing personal care and beauty divisions.