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Some UK dividend-paying stocks are generating returns well above their historical norms. Here are three of them. FTSE 100 Index whose payments expected for fiscal year 2025 seem very attractive.
Asset Management
First is the investment management company. M&G (LSE: MNG). The stock offers a very attractive forward yield of 9.9%, so I have been considering it for my portfolio recently.
The only reservation I have is that I already have shares in Aviva (LSE: AV.), HSBC Bankand Legal and general.
I am a little concerned about overexposing my portfolio to financial stocks, especially as all of them are susceptible to collapse if the global economy collapses. If that happens, clients may withdraw more money from M&G funds.
Still, I think the company has successfully navigated a challenging macroeconomic environment over the past two years. In the first half, it reported an adjusted operating profit of £375m, which was almost equal to the figure for the previous year.
In June, 62% of its mutual funds ranked in the top two quartiles of three-year performance, and 66% ranked in the top five-year performance quartiles. In institutional asset management, more than 70% of funds outperformed their benchmarks over the same periods.
The company's Solvency II coverage ratio increased to 210%, indicating a strong capital position. The dividend rose slightly from 6.5 pence per share to 6.6 pence.
The yield is currently the second highest in the FTSE 100 (excluding Vodafonewhose imminent cut shows that high returns are not guaranteed).
Tobacco
The following is British American Tobacco (LSE: BATS). The tobacco giant offers a dazzling forward dividend yield of 8.7%.
The stock is up 20% since I started buying it in March. However, it still appears to be very undervalued with a forward price-earnings (P/E) multiple of just 7.6 for 2025.
That is much less than the average of the FTSE 100 and its international peers such as Altria and Philip Morris International.
It is true that cigarette sales are declining worldwide and that its non-smoking division (vaping, heated tobacco, pouches, etc.) faces tough competition. These are certainly risks.
Yet the company continues to make substantial profits (enough to afford the generous dividends) while buying back a lot of its own shares.
If the stock continues to trade at a significant discount to its US peers, I think it is only a matter of time before the company moves its primary listing to New York. It's not great for London, but this could result in a higher valuation.
Sure
Finally, there is Aviva. The insurance stock has a projected dividend yield of 7.7%. It is not as high as the previous two, but it is still more than double the FTSE 100 average.
In the first half, the company generated growth across the board. Group operating profit rose 14% to £875m, and general insurance premiums in the UK and Ireland rose 18% to £3.8bn.
The interim dividend was increased by 7% to 11.9 pence per share, while a £300m share buyback was carried out.
Executive Director Amanda Blanc was optimistic: “Sales are up, operating profit is up and the dividend is up. Our plan to offer more to customers and shareholders is working very well.“
As with M&G, a market decline would negatively impact the value of its investment portfolio and dampen investor sentiment around the sector.
Still, Aviva's management is confident that shareholders will get more profits. With the money I have left over, I would buy more shares.