Interactive Investor

Two UK shares make this high-quality dividend list

2nd July 2020 15:01

Graeme Evans from interactive investor

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Analysts pick their starting 11 high-quality dividend players. Find out who makes the list here.

Berkeley Group Holdings (LSE:BKG) was today named in a global first XI line-up of high-quality dividend stocks for investors to withstand the current Covid-19 income crisis.

UBS picked Berkeley among 11 preferred names from its high-quality dividend paying screen, with the UK housebuilder the representative in the consumer discretionary sector.

Berkeley will announce its dividend next month, having already indicated it will pay £140 million by September through its ongoing commitment to return surplus capital to shareholders. It trades with a forward dividend yield of 5%.

The stocks from 10 other sectors to feature alongside Berkeley include the US-listed quartet of CME Group (NASDAQ:CME), AbbVie (NYSE:ABBV), IT company NortonLifeLock (NASDAQ:NLOK) and industrials stock Huntington Ingalls (NYSE:HII).

UBS has used quantitative models to find stocks which are high quality compared to their peers, which pay a dividend and are unlikely to cut it. The findings come after a brutal few months in which even Royal Dutch Shell (LSE:RDSB) cut its dividend for the first time since the Second World War.

Lloyds Banking Group (LSE:LLOY), HSBC (LSE:HSBA) and Barclays (LSE:BARC) were among the UK-listed banking stocks to pass up their dividends after coming under pressure from regulators at the height of the crisis.

The pain continues to be felt, with packaging company DS Smith (LSE:SMDS) concluding in annual results released today that the outlook was still too uncertain for it to pay a final dividend. The FTSE 100 index company had previously pulled the half-year dividend due for payment in May.

UBS said its quant model suggested that dividend growth will be negative across all regions over the next 12 months, with the United States likely to see the lowest decline at minus 3.2% and Europe biggest at minus 16.4%.

Healthcare continues to be the sector with the highest forecast dividend growth, as well as the only industry likely to grow pay-outs. In contrast, the energy sector may decrease its dividends by up to 25% after a slide in oil and gas prices.

The only other UK stock on UBS's longer list of high-quality dividend stocks is RSA Insurance Group (LSE:RSA), which is in fifth place among the chosen financials. Having reported robust first quarter results, the group pledged in May to restart dividend payments when it is prudent to do so.

The hopes of income investors are being lifted by signs of a quicker-than-expected recovery for the UK economy. Earlier this week, Bank of England chief economist Andy Haldane said payments, traffic flow and business surveys all pointed towards a V-shaped rebound, although he admitted that a steep rise in unemployment posed the biggest threat.

The second quarter recovery in asset prices has been propped up by extraordinary levels of support from central banks. These efforts are likely to be remain in place for some time, with the minutes of the June meeting of US Federal Reserve showing strong levels of support for linking rate-setting policy to specific economic outcomes.

The report showed that the Federal Reserve expects protracted softness beyond this year. UBS said today:

“Like us, the committee thinks inflation is soft and will stay that way for years. Indeed, some participants worried that inflation expectations might get worse from here, weighing further on realised inflation.”

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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