Outperforming UK Dividend Kings

Defensive stocks are in vogue once again, and the UK has several that stand out for their high yields, even after substantial growth. Will they continue to see upside?

Top-Performing High-Yield UK Stocks

• British American Tobacco (BATS), yield 6.3%, YTD performance +39%
• Schroders (SDR), yield 5.5%, YTD performance +28%
• Admiral (ADM), yield 5.45, YTD performance +34.2%
• GSK (GSK), yield 4.0%, YTD performance 24%
• Lloyds Bank (LLOY), yield 3.9%, YTD performance +64%

FTSE 100 Attracts Defensive Plays

With AI-driven tech stocks having pushed US stock markets higher over the last couple of years, investors are understandably nervous about high valuations. Those looking for defensive plays have turned to the relatively undervalued UK market, which offers a bounty of high-yield stocks. On average, the FTSE 100 dividend yield is just 3.2%, but several companies offer significantly higher returns and have seen their share price rise substantially since the start of the year. What's more, several are in the defensive sector, such as finance and consumer staples. The international nature of many FTSE 100 companies means they generate revenue globally and could be somewhat insulated from the slow economic performance in the UK.

British American Tobacco's Reliable Profits

The cigarette and tobacco-related products company is one of the go-to defensive firms, even as demand for traditional tobacco has declined. The company is in the process of pivoting towards "next-generation" products like vapes, but even when the economy turns down, people still spend on getting their nicotine fix. It also helps that the company is generous with its payouts to investors. BAT will not be updating investors this quarter, but it reported an increase in revenue in the first half, when adjusted for currency effects. This implies that the company is still managing to maintain its sales amid the shift in consumer demand. While expressing confidence in the future, the company also raised its buyback programme by £200 million for this year.

GSK Posted Positive Earnings

The British medicines manufacturer posted solid earnings on Wednesday, getting a 3% bump after raising guidance for the rest of the year. It now expects sales to rise 6-7%, above its previous 3-5% guidance, with core operating profit to rise even faster at 9-11%. The company also beat earnings expectations, posting a profit of £2.01 billion, a substantial improvement from the -£58 million a year earlier. The primary contributor to the company's turnaround was lower legal expenses than the year before. The company also disclosed that it has £900 million remaining under its £2.0 billion share buyback programme for this year, suggesting continued returns to investors in the coming months.

Lloyds Beyond Car Finance

The major UK bank posted better-than-anticipated earnings last week, with profits falling 36% as it set aside money for compensation related to the automotive finance scandal. However, its bottom line of £1.17 billion was better than the £1.04 that analysts had expected. But now that the financial regulator has issued rules on a payout scheme, investors in the bank can focus on future growth. The company improved its interest income by taking advantage of the BOE's rate cuts, which could persist. But what makes Lloyds stand out among UK banks is its relatively generous dividend policy, which offers the highest yield among the major British financial institutions.