The FTSE 100 is expected to deliver around £83.6 billion in dividends in 2025, an increase of 6.5% from the £78.5 billion projected in 2024.
Though it’s too early to say who this year’s dividend stars will be, we do know the stocks that have previously been identified as high-yielding dividend payers.
British American Tobacco BATS leads the pack in Morningstar’s UK Dividend Yield Focus Index.
The cigarette manufacturer has a dividend yield of 8.2% and pays a quarterly dividend of 58.88p. The company is currently trading at around £26.95, below Morningstar’s fair value estimate of about £39.
Despite concerns that BAT’s non-tobacco next-generation products are weaker than competitor offerings, Morningstar analysts say the company is currently undervalued.
They are also encouraged by a sales acceleration in the second half of 2024, which they say was partly driven by innovation.
Unilever ULVR comes in second place. The consumer goods company has a 3.21% dividend yield and pays a quarterly dividend of 36.66p.
Unilever is currently trading at around £45.85, just above Morningstar’s fair value estimate of over £43.
Morningstar’s analysts anticipate Unilever’s enhanced focus on India and other emerging markets should support its volume growth.
However, this will likely result in a substantial currency hit, weighing on the company’s targets for profit growth in hard currency.
Drinks giant Diageo DGE is the third-top dividend yielder in the Morningstar Index.
The multinational alcoholic beverage company has an annual dividend yield of 3.13% and pays a quarterly dividend of 19.84p.
Diageo is currently trading at £25.45, marginally below Morningstar’s fair value estimate of almost £26.
Investors have lower confidence in the spirits industry given disappointing sales post-Covid.
But Morningstar analysts believe the sector will recover and that Diageo will reach its medium-term targets.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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