HBRIY - Top 40 High-Yield Blue-Chip UK Stocks: Summer 2023

2023-07-10 23:47:00 ET

Summary

• The UK is apparently teetering on the edge of a recession, the UK’s long-ticking mortgage time-bomb is in the process of exploding and the FTSE 100 has fallen back towards 7,000, where it has spent most of the last 25 years.
• After falling back to 7,260, the FTSE 100’s dividend yield has increased to 3.9%, which is slightly above its 30-year average of 3.4%.
• One thing you have to be aware of as an income-focused investor is that you are never going to be investing in today’s most popular stocks.

Unfortunately, good news is increasingly hard to find.

The UK is apparently teetering on the edge of a recession, the UK’s long-ticking mortgage time-bomb is in the process of exploding and the FTSE 100 has fallen back towards 7,000, where it has spent most of the last 25 years.

Gloomy indeed.

However, if you’re looking to invest in high-yield blue-chip stocks, then there is a silver lining: The UK’s position as Public Enemy Number 1 (at least as far as investors are concerned) has left both the FTSE 100 and FTSE 250 with an embarrassment of high-yield riches.

High-single digit dividend yields have become commonplace

After falling back to 7,260, the FTSE 100’s dividend yield has increased to 3.9%, which is slightly above its 30-year average of 3.4%. That is one piece of good news, but if you focus on large-cap stocks with the highest forecast yields, the news gets even better as many of them have yields far in excess of 5%.

For example, after the UK stock market’s recent decline, my list of high-yield UK stocks has an average forecast dividend yield of 6.8%, which is very impressive (you can see the full list at the bottom of this post).

30 of those 40 stocks have dividend yields above 5%, 23 have yields above 6% and 17 are above 7%. Three stocks have a yield of more than 10% and the highest yielder (Vodafone ([[VOD]], [[VODPF]])) is forecast to pay an 11% dividend.

Of course, whether or not those forecast dividends will be paid or not is another matter, but either way, the UK market is teeming with attractive high-yield stocks.

High-yield stocks are never going to be flavour of the month

One thing you have to be aware of as an income-focused investor is that you are never going to be investing in today’s most popular stocks. So, if you’re hoping to receive an attractive dividend from today’s hottest tech stocks or the latest ESG trend, you will be sadly disappointed.

High yields mean low valuation multiplies and that means investing in companies that other investors want to avoid, and in most cases, investors are avoiding these stocks because they're old, they're boring (at least at first glance) and they're not always aligned with modern ethical sensibilities.

For example, in the top half of my UK dividend top 40 list, you’ll find:

• five natural resource extractors
• four boring banks (i.e. not sexy fin-tech banks)
• three utility suppliers
• three life insurers
• two tobacco companies
• two housebuilders
• And the almost 100-year-old M&G

Many of these companies are excluded from ESG-focused funds and none of them are going to boost the average Millennial's pulse rate, let alone the average member of Gen-Z.

However, for those of us who are older and (perhaps) wiser, a collection of mature, established multi-billion pound companies with high-single digit yields is a good place to look for sensible long-term investments.

Be greedy when others are fearful

I’m going to end this post by repeating the quote I used in the last quarterly update because it still very much applies to the current environment:

“Every decade or so, dark clouds will fill the economic skies and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.” - Warren Buffett

Here's the full list, which you can also download as a PDF .

Note: This is a mechanical list that ranks FTSE 350 stocks by a combination of their market capitalisation (bigger is better) and forecast dividend yield (higher is better). It says nothing about my like or dislike of any particular stock, or whether you should or shouldn't invest in them. It is just an easy way to boil the investment universe down to a short list of high-yield investment candidates. The data comes from SharePad .

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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