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 Smith & Nephew plc (NYSE:SNN) 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 healthcare professional putting the finishing touches on a patient’s knee implant in an operating theater.
Smith & Nephew plc (NYSE:SNN)
Dividend Yield as of December 29: 3.03%
Smith & Nephew plc (NYSE:SNN) is a London-based multinational medical equipment manufacturing company that offers a wide range of services and products to its consumers. The company’s Advanced Wound Management (AWM) segment continued to lead among its various divisions, generating $422 million in revenue in Q3 2024, a 6.5% increase compared to the same period last year. Analysts highlighted the segment’s strengths, including a diverse and loyal customer base, a strong group of current buyers, and proprietary technology.
Overall, in the third quarter of 2024, Smith & Nephew plc (NYSE:SNN) posted revenue exceeding $1.4 billion, reflecting a 4% increase compared to the same quarter last year. However, the growth was not particularly reassuring for investors. The company explained that slower performance in China during the quarter had a negative impact on growth, reducing it by 190 basis points. This was due to the effects of Value-Based Pricing (VBP) on Sports, along with weaker demand and subsequent adjustments in the Recon segment. The stock has fallen by over 9% in the past year.
Despite these challenges, Smith & Nephew plc (NYSE:SNN) is progressing with its transformation into a higher-growth company. The US Recon segment, which was once a weakness, has shown growth, and the issues in China are anticipated to ease by 2025. Continued improvements in operational and commercial metrics suggest that the company’s 12-Point Plan and cultural changes are becoming integral to its operations. Heartland Advisors made the following comment about Smith & Nephew plc (NYSE:SNN) in its Q3 2024 investor letter. Here is what the firm has to say:
“Health Care. Another new holding from our quality value watchlist is Smith & Nephew plc (NYSE:SNN), a leading medical device company for advanced wound care, sports medicine, and orthopedics.
The company has been hard at work for over two years implementing a badly needed self-help playbook. Those efforts are increasingly bearing fruit. While SNN’s wound care business enjoys a strong return on invested capital, its orthopedics group is well below peers or what is deemed acceptable. Management is taking several measures to improve asset utilization and capital allocation. Fixing the orthopedic segment’s performance can unlock significant value for shareholders…” (Click here to read the full text)
Smith & Nephew plc (NYSE:SNN) is one of the best FTSE dividend stocks on our list as the company has been making regular dividend payments to shareholders since 1937. It currently pays an interim dividend of $0.144 per share and has a dividend yield of 3.03%, as of December 29.
Insider Monkey’s database of Q3 2024, 10 hedge funds tracked by Insider Monkey held stakes in Smith & Nephew plc (NYSE:SNN), up from 9 in the previous quarter. These stakes are collectively valued at over $27.4 million. Among these hedge funds, Armistice Capital owned the largest stake in the company in Q3.
Overall SNN ranks 6th on our list of the U.K. dividend champions for 2024. While we acknowledge the potential of SNN 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 SNN 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.