The dividend has always been an important component of the investment culture in the UK. Because of this, we provide you with a compilation of what we consider the best UK dividend stocks. Most British companies pay the dividends semi-annually, but a few pay quarterly dividends. We give you the list of the UK quarterly dividend stocks.
The UK dividend culture is easily seen by looking at the companies’ websites which have a dedicated page showing the dividend history, much more in detail than in most other countries, except the US.
Because the UK is home to many great businesses that pay a dividend, we have compiled a list of what we consider the most robust payers and thus the best UK/British dividend stocks.
However, the Covid-19 has put a real spanner in the works for many British dividend investors:
According to AJ Bell, the number of FTSE-100 companies that have paid a rising dividend for the last ten years went down from 25 to 14 during 2020.
Moreover, 53 current or former members of the FTSE 100 have cut, deferred, or canceled more than 37 billion GBP of dividend payments for 2020. This shows the risk of being a dividend investor and relying on the dividend as “income”. An “income” is not a coupon.¨!
Previous articles in this dividend series:
- The best Swiss dividend stocks
- The best French dividend stocks
- The best German dividend stocks
- The best Italian dividend stocks
- The best Finnish dividend stocks
- The best Danish dividend stocks
- The best Norwegian dividend stocks
- The best Swedish dividend stocks
Why invest in dividend stocks?
Any investment has its pros and cons. We at Rational Thinking are not dividend investors, we rather prefer to invest based on expected total return, something we believe is the most rational approach to investing. We believe many investors get taken away by their dividend bias and neglect the most important fundamentals.
However, there are many reasons why it makes sense to invest in dividend stocks:
- The most robust and stable businesses pay a dividend.
- Dividend payers have outperformed non-payers for a century.
- You can reinvest the dividend.
- Dividends can serve as a heuristic for finding solid companies.
- The dividend is less volatile than the share price, thus you are likely to do fewer behavioral mistakes.
Most of these arguments have been discussed in several articles about dividend investing.
We would also give you a friendly reminder about the seven different model portfolios we offer, both dividend and non-dividend stocks:
Where to find the dividend history for UK dividend stocks:
Almost all UK firms publish their dividend track records on their websites, some even 40 years back in time. Thus, we have not bothered to make graphs in this article. Just use any search engine and you can easily find all the info you look for.
UK withholding taxes:
Most countries have withholding taxes, but the UK is one of the few that doesn’t (Singapore and Hong Kong are the two other). This is a huge advantage. One of the main headwinds for dividend investors is taxes on the dividends.
Dividend frequency for UK dividend stocks:
Most companies pay twice per year, an interim dividend and a final dividend.
UK quarterly dividend stocks
Compared to the US, the list of quarterly paying UK stocks is small. Of the “big and famous” companies in the FTSE 100 only these pay a quarterly dividend:
- British American Tobacco
- Imperial Brands
- Royal Dutch Shell
In addition to these, there are a few among the FTSE 250 and the small-cap segment.
Dividend stocks in the FTSE 100 with 10 years of increases:
Before the Covid-19 struck, 25 companies in the FTSE 100 had paid a rising dividend for 10 years straight. This number has now dwindled, according to AJ Bell, an advisory firm, to only these companies:
- Legal & General
- Intermediate Capital
- Scottish Mortage Investment Trust
- Reckitt Benckiser
- Spirax-Sarco Engineering
- Hargreaves Landsdown
- British American Tobacco
Rising, steady, or lower dividend, does it matter?
Sometimes defending a dividend track record can become a burden, so at the end of the day what matters is the business model.
History shows that the best dividend stocks (in the US and the UK) are those that have a payout ratio below 70% of the earnings.
Make sure you analyze correctly and focus on future growth, not on the current yield. Be careful at picking stocks with a high yield.
The complete list of the best British dividend stocks:
We believe our list differs from others: we have included many UK dividend stocks from outside the FTSE 100, and more are likely added in the future. The article is a work in progress. As we dig deeper into smaller and lesser-known companies, the article gets updated.
The list below is not a recommendation to buy the 45 companies mentioned. Please do your own due diligence as many of the companies surely will perform poorly over the next decade(s). This is the nature of the market!
The companies are ranked by alphabetical order:
Admiral is mainly an insurance company and secondly a price comparison company (they own several price comparison sites). It’s still controlled by the founders.
The company is slightly different than most other insurers: much of the insurance risk is outsourced to other insurers, among them Munich Re, the world’s biggest reinsurer.
Admiral has a very low combined ratio of around 90, just a tad higher than the highly profitable Nordic insurers. The insurance business is competitive, but Admiral seems to have the cultural specifics and incentives to underwrite correctly and not chase growth at all costs.
Nearly all profits are handed back to the shareholders as dividends. Since the IPO in 2004, the dividend was increased every year until 2016 when it was reduced. Due to Covid-19, it was lowered again in 2020.
In addition to the ordinary dividend, a special dividend is frequently paid out. Despite the reduced dividend in 2020, we expect the dividends to reach “all-time high” pretty soon.
A.G. Barr is a branded soft drinks business based in Scotland.
Their most famous product is IRN-BRU, however, not so well known outside the UK. IRN-BRU has, to say the least, a rather special taste for a soft drink but it’s still a very popular drink in Scotland. IRN-BRU was launched in 1901. Other products are Rubico, Strathmore, and Snapple.
The dividend has been raised for almost two decades, but reduced sales due to Covid-19 meant the dividend for 2020 was suspended. Barring more lockdowns, the dividend is planned to resume in 2021.
Ashmore is an investment manager specializing in emerging markets. They offer both equity and debt products, managed actively. It was established as late as 1999, thus the history is rather short.
Ashmore has increased its dividend every year since 2007.
Ashtead has increased or kept the dividend steady since at least 2007. Their business is equipment rental in the UK, The US, and Canada. The equipment includes tractors, trucks, movable lifts, etc.
Associated British Food (ABF):
ABF is the holding company of a group of businesses within the food sector. Its business segments are Sugar, Agriculture, Retail, Grocery, and Ingredients. The aim is to run its subsidiaries “hands off” from the HQ.
The dividend has grown at 7.2% annually since the year 2000 with a raise every year until the Covid-19 struck. For the accounting year 2020, the dividend was cut completely. However, we expect the dividend to resume.
AstraZeneca is one of the world’s major drug companies. The company is a result of the merger between the Swedish Astra and the British Zeneca in 1999.
The dividend yield is normally high, resulting in modest dividend growth: the dividend has been held mostly steady for over a decade, but most likely is pretty safe.
Aviva is an insurance company, the largest multi-line insurer in the UK (P&C, protection, and health). Additionally, Avira offers retirement and saving products/services.
The dividend has, as is often normal among insurers, been relatively high. Thus, dividend growth is modest, but over time increasing.
BAE Systems offers defense, aerospace, and security solutions worldwide. This includes electronic warfare systems, flight controls, surveillance systems, cybersecurity, and more.
The dividend was raised every year from 1999 until 2019 when the final dividend was postponed. However, this was a cautious move, and the dividend will most likely be increased again shortly.
British American Tobacco (BAT):
As the name implies, BTI is a tobacco company, a sin-stock, and regarded as unethical. Tobacco has been the best industry in the US over the last century. In the UK tobacco stock was second to another sin-industry: alcohol.
Despite fewer cigarette smokers, the inelasticity of the price has made the tobacco producers increase the price more than the drop in sales. The tobacco companies have huge barriers to entry and are thus unlikely to be outcompeted by new players. Only new products can severely disrupt the business.
From 2018 the dividend is paid quarterly. The dividend has doubled over the last decade, but it’s not increased every year. Because tobacco throws off a lot of cash, expect almost all earnings to be paid out as dividends.
Britvic is a rather “unknown” soft drink producer. The origins date back to 1938, but it became a public company as late as 2005. Most of the sales are in the UK, but some products are exported to the EU. Some years ago Britvic made a rather surprising move into the Brazilian market.
Since its listing, the dividend was increased every year except in 2012 when it was kept steady. However, for 2020 the dividend was reduced by 25%.
Bunzl is a distribution and outsourcing company. Bunzl sources its products worldwide to get the best suppliers, and the products are later resold to clients, thus their clients can focus on what they do best. Most of the goods are everyday items. The main idea is that Bunzl can get better prices than the customer potentially could.
The dividend was increased every year from at least 2005 until the final dividend for 2019 was canceled. The dividend has resumed with a higher dividend for 2020.
Burberry is a luxury retailer under the Burberry brand. It sells mainly apparel for men, women, and children.
Burberry opted not to declare a final dividend for FY 2020. Prior to that, the dividend was raised every since 2007. The dividend is most likely resumed, and increased, at the end of FY 2021.
Compass is the world’s biggest food service company, serving meals in for example schools, hospitals, factories, offices, etc. Needless to say, the Covid-19 has put a real dent in their operations. The revenue has dropped nearly 20%, while the earnings and cash flow have both dropped about 80%. Will the company recover? Most likely, yes.
Because of the sudden drop in revenue and cash flows, the dividend is halted until the Board finds it appropriate (both the interim and final dividend for 2020). Prior to 2020, the dividend was increased every year from 2002 until 2019, rising from 7.1p to 40p.
Craneware develops, licenses, and supports computer software for the healthcare industry in the US. It’s a young company established as late as 1999.
It’s based in Edinburgh, but most of the sale is in the US. It’s still a small company with a market cap of about 500 million GBP. About 10% of the market cap is a net cash position and the balance sheet carries no interest-bearing debt. Keith Neilson, the founder, owns about 12% of the company.
Craneware reports in USD, but pays the dividend in GBP. The dividend has been increased or held steady for at least 15 years, but it was slightly reduced to err on the safe side during Covid-19.
Cranswick is a food company that supplies retailers pork, bacon, chicken, poultry, sausages, pastries, and some ingredients. The main market is the UK, but it also serves customers in the EU and a few outside the EU. Because of the Covid-19 Cranswick’s sales rose 16% in 2020.
Cranswick has increased the dividend every year since 1998. The dividend growth is 10% since 1998, and 8% in the last decade.
Croda is a chemical company distributing its products worldwide but is not a typical industrial company.
Products include crop protection, vehicle cleaning chemicals, bio-stimulants, lubricant additives, coatings, self-tanning, color cosmetics, and many more. It has a pretty diversified product range, and the company still has a modest market cap of 9 billion GBP.
Croda has increased the dividend every year since the year 2000. The dividend growth has been 10.5% annually since then, and 10% over the last decade.
Daily Mail and General Trust (DMGT):
Daily Mail and General Trust is probably best known for owning the newspaper called The Daily Mail. This business is not as profitable as it once was, but the company has transformed itself massively over the years and is today more like an investment company.
The segments are B2B (insurance risk, property information, events & exhibitions), consumer media, and associates and dmg ventures (venture business).
DMGT’s dividend has been increased every year since 1999 (DMGT is not part of the FTSE 100). The dividend growth has been modest at 4% annually, just a tad higher than the inflation rate.
DCC is an Irish company based in Dublin.
It’s a diversified company with four segments: LPG (sale and marketing of LPG), Retail & oil (retail, logistics, and transport of commercial fuels and heating oil), Technology (distribution of technology products like gaming consoles, software, accessories, etc.), and healthcare (nutrition products, beauty products, etc). The two first segments account for 75% of the sales, and 80% from the UK and the EU.
DCC has paid a rising dividend every year since 2004 except for 2013 when it was slightly lowered. The dividend growth has been 9.8% annually since 2004 and 8% over the last five years.
Diageo is a premium sin-stock: premium because its focus is on expensive brands, and a sin-stock because it sells a portfolio of alcoholic drinks. Alcohol stocks have been the best industry in the UK over the last century. Diageo’s most famous brands are Johnnie Walker, Guinness, Bailey’s, Smirnoff, and Captain Morgan.
The dividend has grown at a CAGR of 6.5% since 1999, outpacing the inflation rate, and has been increased every year.
Flutter is a sports betting and gaming company based in Ireland. It operates websites such as paddypower.com, betfair.com, sportsbet.com.au, tvg.com, us.betfair.com, fanduel.com, and adjarabet.com. Additionally, it owns a TV channel about horseracing.
The company is perhaps better known as Paddy Power Betfair (the name was changed in 2019). The company has grown revenue immensely over the last decade (19% CAGR), but free cash flow has only had 10% growth. The difference is mainly investments into further growth.
Flutter’s dividend history is a positive one. The dividend has increased every year since 2001 except the last three where it has been kept steady.
Halma is still a small company, despite having raised the dividend for over 39 years until they lowered the dividend due to Covid-19. Halma still should have ample opportunities to grow because of its small size. Growth has come from both organic but many bolt-on acquisitions. The business segments are Process Safety, Infrastructure Safety, Medical, and Environmental & Analysis.
Hargreaves Lansdown plc offers financial services for both individuals and corporations in the UK and Poland (!), mainly via its investor platform. The services involve stock trading, fund dealings, cash savings, advisory services ISAs, etc.
Hargreaves dividend has been steadily increasing: every year since at least 2007.
Imperial Brands is the second tobacco company in the UK. Please see what we wrote about the British American Company above.
The dividend is paid quarterly since 2017. The dividend yield is high as the valuation multiples are low and all earnings are paid out as dividends. The dividend was lowered in 2020 after a raise every year since 1998.
Intermediate Capital is a private equity firm investing worldwide in debt, credit, and equity.
A dividend has been paid since 1998 and increased every year except for 2009 and 2010. The GFC in 2008/09 was tough for Intermediate Capital and the share price plummeted 80% until it reached a bottom.
Intertek offers safety and quality solutions for a diversified group of businesses worldwide. This includes, for example, certification services for a range of industries, facility plant verification, cargo inspection, analytical testing for agricultural companies, cybersecurity services, etc. It was founded as long back as 1885.
The dividend growth of Intertek has grown at an exceptional 17% annual rate since 2002. The dividend has been raised every year.
Johnson Matthey has a diverse business model, divided into four business segments: Clean Air, Efficient Natural Resources, Health, and New Markets. Products are many, for example, catalysts for exhaust emissions, additives for oil and gas companies, pharmaceutical ingredients, battery materials, fuel cell technologies, and battery systems.
Johnson Matthey increased the dividend at a rate of 7.5% annually from 1999 until 2019 with an increase every year. However, for 2020 the dividend is reduced by 35%.
Legal & General:
Legal & General is a financial company that offers annuity contracts and insurance for pensions schemes, index fund management, fixed-income funds, active equity management, multi-asset funds, investment strategy services, health insurance, disability insurance, mortgage finance, reinsurance, and some other products and services. The company was founded in 1836.
Legal & General’s dividend has grown at 8% annually since 1998 and it has never been lowered. The dividend yield has historically been in the 3-6% range.
This software company has witnessed strong growth, but the last years have proved difficult with a big drop in the share price since 2017. Leverage is a bit high, and the market fears an equity raise. With 70% of the revenue recurring, it should manage to ride the storm, however, this might be a stock with a splendid history but uncertain future.
Micro Focus increased the dividend every year from 2005 until 2019, until it was reduced by 23% in 2020.
National Grid is a utility, both electricity, and gas. Its main market is the UK, but it additionally has a significant business in the USA. The utility business has huge CAPEX, but this is offset by a regulatory moat. This is a heavily regulated business that is unlikely to be disrupted.
National Grid is a very stable dividend payer, only once has it been lowered since the year 2002 (in 2010). The dividend growth has been 5.7% annually. The payout ratio is high, as is normal for utility stocks, thus National Grid normally trades with a higher dividend yield than the average yield of FTSE 100.
Nichols is renamed after its founder, Noel Nichols, who in 1908 invented Vimto, a fruit drink, which still is very popular and the cornerstone of the company. Unlike Britvic and A.G. Barr, the sales are more diversified: Nichols sells its products in over 80 countries.
The dividend has shown a steady rise for over two decades, but due to Covid-19, the final dividend was postponed to preserve cash.
Pennon’s core services are water and wastewater both in the UK and internationally. This involves operating water reservoirs, wastewater treatment, wastewater pipelines, and drinking water networks.
Pennon’s dividend history goes back to 1990 and every year has seen a rise in the dividend except in 2001, 2006, and 2007.
Its main business segment is life insurance. Other services are health insurance, savings products, annuities, retirement plans, and investment funds. The company was founded in 1848 and this should indicate a robust business.
The dividend doesn’t increase every year, but it’s stable. Since 1998 it has been slightly lowered four times. The dividend growth has been 4% annually, more or less in line with inflation.
Reckitt Benckiser is a consumer goods company resulting from the merger between British Reckitt & Colman and Dutch Benckiser. The products are mainly in health, hygiene, and home products. For example, brands include antiseptics, sore throats, hair removal, health supplements, baby food, etc. The list is long.
Reckitt Benckiser’s dividend has been increased every year since 2003.
RELX offers solutions to analyze risk for customers all over the world. This involves making technology and algorithms to help customers in decision-making.
The dividend has increased every year since 2000 except for 2011 when it was held steady. The dividend growth has been 8% annually for two decades.
Rightmove is a property portal where individuals and commercial agents can display their offers. It has a moat via the network effect, but disgruntled customers managed to admit Rightmove to make huge discounts in 2019/2020. Coupled with the Covid-19 the revenue for 2020 shows a 30% reduction (a similar reduction in the EPS).
Rightmove initiated the dividend in 2008 and was increased every year, except for 2009 when it was kept equal to 2008. However, like many British companies, they decided to skip the final dividend for 2019, a planned rise from 2018. The interim dividend for 2020 was also suspended.
Rotork is a rather “unknown” company despite having delivered fantastic operational results for decades. It’s even more impressive when we consider that the volatile oil industry is the biggest customer of their products. Rotork makes and distributes flow control instruments.
The dividend was raised every year from the year 2000 until 2019 when it was reduced by 60%. The new dividend for 2020 is reduced by 33% compared to the one from 2018.
Sage is a software company, mainly accounting and payroll, and thus has a high degree of recurring revenue. Moreover, the switching costs are high (the contract renewal rate is close to 90%).
The dividend has been raised every year for over two decades.
Scottish Mortgage Investment Trust:
Scottish Mortgage Investment Trust is an investment trust investing in public companies worldwide. The trust is managed by Baillie Gifford & Co in Edinburgh, Scotland. Their investment style is best summarized by themselves on their website:
We look to add value over five year time frames, preferably much longer. We don’t see that we can add much more than anyone else in the short term.
Scottish Mortgage has paid a rising dividend every year since 1998 except for a 5% drop in 2009. The dividend growth was 5% for the whole period, but only 3% over the last decade. Prior to the cut in 2009, it has not cut the dividend since 1933. All other years it has increased or maintained the dividend, even during both World Wars.
Smiths is an old company founded in 1851. The business is diverse and includes the manufacturing of mechanical seals, bearings, sensors (for explosives, weapons, narcotics, etc.), radio connectors, heat fluids, etc.
Smiths’ dividend was kept steady or increased from 1998 until it was lowered by 23% in 2020.
Spectris is a supplier of productivity-enhancing instrumentation and controls, both for software and hardware. The idea is that customers can instantly show the value of Spectris’ products by better, faster, and more efficient work.
Spectris has increased its dividend every since 1988 until they postponed the planned final dividend for 2019 because of Covid-19. The dividend is resumed with another increase during 2020. This means the track record is somewhat intact with the difference of it being slightly delayed. The dividend is paid twice per year.
Spirax-Sarco is, as the name implies, an engineering company. The business segments are engineered solutions for design and maintenance for industrial systems, and pump and fluid steam systems.
Spirax-Sarco has paid a rising dividend every year since 1998, including the Covid-19, and has currently one of the best track-record there is in the UK market.
SSE is a utility company based in Perth, Scotland, and generates electricity from water, gas, coal, and oil. Additionally, it has a gas distribution business, property business, and telecom business.
The SSE Group’s dividend was raised every year from 1998 until 2020 when it was reduced by 18%. However, the dividend growth over the last decade has been low, even before the dividend reduction (about 2.5% annually).
Unilever is a global consumer staple with three segments: Beauty & Personal Care, Foods & Refreshments, and Home Care. It has a wide portfolio of well-known brands. Almost 50% of the revenue comes from emerging markets, which are expected to grow faster than the developed nations.
Unilever is one of the few companies that pay a quarterly dividend and is paid in euros. The dividend is a “steady eddie” with an 11.5% CAGR since 1999.
WH Smith used to be known for its High Street boots, but this business is in decline. The company has managed to transform itself into the travel business by establishing itself on train stations and airports, for example. Because of this, the share price took a hit during Covid-19 (because of less traveling).
WH Smith’s dividend has been increased every year since 2004 at a pace of 10.5% annually. That is pretty impressive for a “dying business”. The payout ratio is still below 60%. At the same time, the number of outstanding shares has declined 15% over the last decade. Buybacks are effective because WH Smith trades at low multiples.
WPP is the world’s biggest advertising agency. It’s the brainchild of Sir Martin Sorrel who in 1985 took control of a small wire basket manufacturer and turned it into an agency network. WPP is the world’s largest media company but has recently struggled as competition has increased. However, it’s still making a lot of money.
Up until 2019, their track record was 20 years with a rising or steady dividend. However, prior to Covid-19, the company suffered some setbacks and the dividend was cut 60%.
The best UK/British dividend stocks – conclusion:
The UK has many quality companies which makes the case for international diversification appealing, especially for investors based in markets that are either small or concentrated toward a narrow base of industries. In this respect, we hope you find our list of the best UK/British dividend stocks useful.
We end the article by reminding investors not to fall prey to the dividend bias. A dividend is only a distribution of earnings and retained earnings. At the end of the day, it’s the total returns that matter.