We recently compiled a list of the U.K. Dividend Champions List: 2024 Rankings by Yield. In this article, we are going to take a look at where Linde plc (NASDAQ:LIN) stands against the other U.K. dividend champions.
In recent years, investors have shown a preference for global stocks, particularly high-growth options like US technology companies, over UK equities. Over the past decade, the British index has achieved a 6% annual total return compared to 13% for the US broader market. Analysts suggest that this underperformance is partly due to weak earnings, domestic political instability, and the absence of a significant technology sector in the UK market. However, a notable factor is the sharp decline in valuations as investors have steered away from UK stocks. Goldman Sachs remarked that the challenge is not a lack of interest from foreign investors, who currently hold about two-thirds of the UK market capitalization, but rather the limited participation of domestic investors in UK equities.
That said, investing in UK stocks can still be a worthwhile choice. While the UK market lacks significant technology companies, its equities in sectors like finance, energy, and mining provide diversification opportunities that complement the tech-heavy and highly valued US markets. In addition, the UK’s index faces less risk from tariffs and trade restrictions. Goldman Sachs Research highlighted that UK equities could gain from various government measures, such as pension reforms aimed at boosting domestic investment in UK stocks and policies supporting homebuilding initiatives.
Lindsay Matcham, involved in futures sales trading at Goldman Sachs Global Banking & Markets, suggested that UK equities could appeal to investors seeking diversification. She noted that these stocks offer attractive valuations, strong dividend yields, and reduced concentration risk.
Russ Mould, investment director at AJ Bell, presented a rather interesting take on the UK market’s limited exposure to technology stocks. He pointed out that this reduced exposure has made the UK stock market less volatile compared to the US, where technology stocks are a key driver of market fluctuations. Mould observed that, despite its criticisms, the UK market experienced a relatively stable summer compared to the US, attributing this to differences in valuation and the relative expectations of the two markets.
The lower volatility in the UK market presents compelling investment opportunities, particularly given its attractive dividend yields. The FTSE 100 offers a yield of 3.68%, while the FTSE 250, representing medium-sized UK firms, provides slightly lower but still appealing income prospects. This setup allows investors to explore higher-growth sectors, such as smaller companies while benefiting from rising dividends. According to BlackRock, UK dividends are currently growing at a rate of 2-3%, aligning with long-term inflation. Stocks that consistently grow their dividends often have stable cash flows, enabling them to increase payouts over time.
Janus Henderson’s 2023 annual dividend report highlighted this upward trend, revealing that UK dividends reached approximately $86 billion in 2023, a significant rise from the $63.1 billion distributed in 2020. Given this, we will take a look at some of the best FTSE dividend stocks.
Our Methodology:
For this list, we reviewed the UK CCC Dividend list, which highlights UK companies with the longest histories of dividend growth. This list is based on the structure of David Fish’s US Dividend Champions spreadsheet and serves as a useful tool to help identify and screen dividend growth stocks in the UK. From this list, we chose 10 stocks with the highest dividend yields as of December 29 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 scientist in a lab coat inspecting a cylinder filled with industrial gas.
Linde plc (NASDAQ:LIN)
Dividend Yield as of December 29: 1.31%
Linde plc (NASDAQ:LIN) is a global multinational chemical company that provides a wide range of gases to industries like healthcare, manufacturing, energy, food and beverage, chemicals, and electronics. Despite facing ongoing economic challenges in the third quarter, the company delivered impressive results, with a 9% increase in earnings per share (EPS), a rise in return on capital (ROC) to 25.8%, and a 130 basis point improvement in operating margins, reaching 29.6%. In addition to managing its short-term performance, the company secured its largest-ever gas sale project, boosting its project backlog to $10 billion. This milestone supports future growth in the industrial gas sector while upholding the company’s disciplined investment approach. The stock has surged by nearly 3% in the past 12 months.
In Q3 2024, Linde plc (NASDAQ:LIN)’s revenue came in at $8.4 billion, which showed a 2.46% growth from the same period last year. The revenue also surpassed analysts’ expectations by $9.33 million. The company’s operating profit amounted to $2.1 billion, with an operating profit margin of 25%. Mar Vista Investment Partners, LLC mentioned LIN in its Q3 2024 investor letter. Here is what the firm has to say:
“Linde plc (NASDAQ:LIN) is the world’s largest, global industrial gas producer. The company enjoys the highest profit margins and returns on capital in the industry. Linde’s primary products are atmospheric gases and process gases. Industrial gases have benefitted from secular growth trends in decarbonization and carbon sequestration. Moreover, the opportunity in blue and green ammonia and hydrogen are substantial. Projects in these areas are quickly being added to its backlog for future growth. We see these secular trends as long-term positives for Linde and the entire industrial gas industry.
Linde believes it can grow its volumes with new applications; the buildout of small, on-site plants using its technologies; and focusing on growing geographies such as India, Malaysia, Vietnam, China and Brazil. Despite the long-term growth opportunities, recent demand trends have slowed due to weak global industrial production and a challenging year-over-year comparable. Among the regions, the U.S. remains resilient, with volumes flat to slightly negative. Europe, Latin America, the Middle East, and China are all sending mixed to negative economic signals. We believe these slower trends are transitory in nature, providing an opportunity to purchase shares in Linde at attractive prices.”
Linde plc (NASDAQ:LIN) is a reliable dividend payer, supported by its strong cash position. In the latest quarter, it reported an operating cash flow of $2.73 billion, an 8% increase from the previous year. Its free cash flow totaled $1.66 billion. During this period, the company returned $1.3 billion to shareholders through dividends and stock repurchases. It has maintained a 31-year record of consistent dividend growth, offering a quarterly dividend of $1.39 per share. With a dividend yield of 1.31% as of December 29, LIN is one of the best FTSE dividend stocks on our list.
As of the close of Q3 2024, 63 hedge funds held stakes in Linde plc (NASDAQ:LIN), the same as in the previous quarter, according to Insider Monkey’s database. These stakes have a consolidated value of over $3.6 billion.
Overall LIN ranks 8th on our list of the U.K. dividend champions for 2024. While we acknowledge the potential of LIN 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 LIN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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