These ‘magic seven’ global stocks pay a 7.8% dividend yield on average, Berenberg says
Investors searching for income in today’s volatile markets may want to look at the “magic seven” U.K. stocks identified by Berenberg. The London-listed stocks include British American Tobacco , Schroders , Rio Tinto , Aviva , British Land , Close Brothers and Legal & General . British American Tobacco and Rio Tinto are also listed on U.S. stock exchanges. Schroders, Legal & General, Aviva, and British Land are traded over-the-counter in the U.S. and Germany. Analysts at the Germany-headquartered investment bank say these dividend-paying companies offer attractive yields averaging 7.8%. “The U.K. equity market is cheap,” Berenberg analysts Jonathan Stubbs and Leoni Externest said in a note to clients on Oct. 13. “The median U.K. dividend yield is back to 3.6% and close to the highs of last year (3.8%).” Their research found that the difference between the top and bottom quarters of the broader U.K. stock market based on dividend yields has widened to levels not seen since the 2008-2009 financial crisis. “Over the last 50 years, this has been a good buy signal for these stocks and also for the broader market,” the analysts said. In the past, when the average dividend yield for these seven companies topped 7%, median returns over the subsequent 12 months reached 60%, with a positive outcome 95% of the time, according to the bank. Schroders The U.K. asset manager currently provides a 5.4% dividend yield. Berenberg notes that this exceeds payout peaks during the Covid-19 pandemic and global financial crisis. Historically, yields above 4.5% have preceded 12-month returns of 54% for Schroders, “with a win ratio of 98%,” according to the bank. Rio Tinto The mining giant now yields 6.2% — just under double the broad U.K. market’s 3.6%. Berenberg’s analysis shows dividend yields above 4.5% have resulted in median returns near 30% for Rio Tinto, with a more-than-90% success rate. Aviva The insurer’s 7.7% dividend yield has rebounded from below 2% during Covid-19. Berenberg points out that yields above 7% have meant over 20% median returns for the company in the past. British American Tobacco The tobacco giant’s 9% yield hasn’t been this high in 20 years; above 9%, the stock has historically returned 52% over the next 12 months with 99% accuracy. However, investors should be aware of the rising regulatory hurdles that companies in the tobacco sector face. British Land For the real estate company, the current 7.2% dividend yield has only been exceeded three times in over 50 years, according to the analysts. Berenberg said yields over 5% had preceded 21% median returns with an 82% probability. Close Brothers The financial services firm now yields 8.1%, topping its 2020 peak. According to the investment bank, yields above 6% have resulted in 29% median returns and a 94% win ratio since 1965. Legal & General Finally, L & G’s 9%+ yield is more than double the U.K. market’s. The analysts said the stock has returned 67% on average with 100% success when yields top 8%.
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