In my search for profitable and safe investments, obviously including the payment of increasing dividends, I came across three interesting companies: British American Tobacco plc (BTI), Glaskosmithkline plc (GSK) and Unilever plc (UL). Since these three companies are based in Great Britain, the dividends they pay are not taxed at source (unlike dividends from North American companies which are subject to a non-recoverable 15% withholding tax). BTI and UL are among the portfolios on this site, which is not the case for GSK.
All three companies have a return on capital (Return on Equity; ROE) very high, have been paying dividends for more than two decades, these dividends having an interesting growth rate.
The table below summarizes some financial information for the three companies:
| Title | Dividend yield | # years of payment | CAGR | Capitalization (Billions) | PE | ROE |
| BTI | 5.64% | 28 | 14.3 | 108.29 | 16.4 | 108.9% |
| GSK | 5.42% | 27 | 9.98 | 134.11 | 15.0 | 114.2% |
| UL | 3.31% | 26 | 6.64 | 128.17 | 19.1 | 64.6% |
CAGR = dividend compound growth rate (compound annual growth rate).
British American Tobacco plc (BTI)
British American Tobacco plc is a holding company engaged in tobacco products. The company's principal brands include Dunhill, Kent, Lucky Strike and Pall Mall. In addition, the company owns many other internationally known brands and locally marketed brands such as Rothmans, Vogue, Viceroy, Kool, Peter Stuyvesant and Benson & Hedges. Tobacco products are sold in 180 markets. In addition to cigarettes, the company also markets smokeless tobacco ("snus"), cigars, cigarillos, rolling tobacco and pipe tobacco. [description from ft.com]
The company's shares are listed on several markets including the NYSE. The company's capitalization is currently $108.29 billion (USD). Thus, it is one of the largest players in the tobacco sector, behind Philip Morris International (USD 128 billion).
ROE stands at 108.9%. BTI's future revenues will depend in particular on the development of its e-cigarette products.
Dividends
As of April 24, 2014, the dividend yield stands at an eye-watering $5.6%. Since 1986, the compound growth rate of the dividend (compound annual growth rate) is 14.30%. In comparison, AT&T (T) has a rate of 2.34%, Coca-Cola (KO) of 8.89% and Walmart (WMT) of 11.46%. In other words, dividend growth is impressive for BTI.
Valorization
Regarding the stock's valuation, the PE stands at 16.4. The chart from FastGraphs (below) reveals that the stock's price (black line) corresponds fairly closely to its intrinsic value as determined by its earnings (orange line). In other words, the stock is fairly valued. However, the current PE is significantly higher than the "normal PE" (average PE over the last 18 years) of 13.9 (blue line). (The dividend yield shown in the chart is incorrect.)
Glaskosmithkline plc (GSK)
GlaxoSmithKline plc (GSK) is a global healthcare group engaged in the creation, discovery, development, manufacturing and marketing of pharmaceutical products, including vaccines, over-the-counter medicines and health-related consumer products. GlaxoSmithKline's products include medicines in a wide range of areas. [description from ft.com]
This gives some stability to revenues even when some patents expire. The company's shares are listed on several markets including the NYSE. The company's market capitalization is currently US$134.11 billion. The ROE stands at 114.2%.
Dividends
GSK has been paying dividends since 1987, the current dividend yield is 5.42%; the CAGR is substantial: 9.98%.
Valorization
The chart provided by FastGraphs (below) reveals that the stock price corresponds fairly closely to its intrinsic value as determined by its earnings. In other words, now would be a good time to invest in GSK. Notably, the PE of 15 is below the normal PE of 16.4. (The dividend yield shown in the chart is incorrect).
Unilever plc (UL)
Unilever Group is a supplier of consumer goods. The group is divided into two related companies: one headquartered in the Netherlands (Unilever NV) and the other in the United Kingdom, Unilever PLC. The company's four product segments are: Beauty and Personal Care (skin and hair care, deodorant, dental care products), Food (soups, broths, sauces, snacks, mayonnaise, salad dressings, margarines and spreads), Refreshments (ice cream, tea drinks, weight management products and fortified nutrition products) and Household Products. [description adapted from ft.com]
The company's shares are listed on several exchanges including the NYSE. The company's market capitalization is currently US$123.04 billion. The ROE stands at 64.6%.
Dividends
UL has been paying dividends since 1988, the current dividend yield is 3.31%; the CAGR is 6.64%.
Valorization
Regarding the stock's valuation, the PE stands at 19.1. The chart provided by FastGraphs (below) reveals that the stock's valuation is currently acceptable: while the price is higher than what the revenues would justify, it is still lower than the normal PE of 19.7. In short, this is not a good deal at the moment and it would be wise to wait for a possible price drop to invest in Unilever plc.
Conclusion
It seems to me that the three stocks described above can be interesting investments in terms of their dividends and their growth. A significant advantage compared to North American stocks is that no portion of the dividend is withheld at source. It should also be noted that the three companies have non-excessive debt levels. However, it would be reasonable to wait for a significant market decline before investing in any of these stocks.
This is obviously just my opinion, it's up to you to form your own opinion...
Discover more from dividendes
Subscribe to get the latest posts sent to your email.
Français 
English 
Italiano 
Deutsch 
Español 
Português
Thank you Jean-Louis for this very interesting article. This subject of untaxed GB dividends being a concern of many readers, I will make sure to add a certain number of English stocks on the EX US strategy. Note that BTI and Unilever are already followed (in Smoking&Drinking and in EX-US).
Thank you very much for this very interesting new analysis.
Note that GSK and UL are in Mornigstar's list of 26 favorite stocks in Europe.
Thanks also for this analysis.
Not being Swiss, I cannot even recover half of the 30% withheld at source in the USA.
I understand that for the Fastrack analysis that I like a lot, you have to use the listing on the US stock exchange but, to avoid being taxed at source, isn't it better to buy these securities on the London stock exchange?
If you find any others, I'll take them!
Many thanks in advance,
Sincerely.
Albert
Without wanting to answer for Jean-Louis, I actually think that he used the American quotation only for the analysis, and that in order to avoid the withholding tax it is better to transact directly via London. But in the end, in any case, it will still be taxed by the French tax authorities...
Following numerous requests from readers I am currently working on adding UK stocks to my Ex-US strategy. This will take some time to set up. I will have to go through the US listing as well, but the result will be the same… just place the orders in London.
Indeed, I used the quote in question because it is the only one available in FastGraphs.
In my experience with BP, whether you buy a UK stock on the London market or the US market, it makes no difference: no withholding tax on the dividend. Whether there are other advantages to buying the stock on its primary market remains to be seen; I can't comment on that.
Furthermore, it should be noted that GSK's share price has recently risen following multiple transactions in the pharmaceutical sector.
Dear Jerome,Dear Jean Louis,
Thanks for the answers.
Here are some companies that seem interesting at first glance: VOO/NG/BP/HSBA/UU/BATS/RDSB/BLT but this is a list
made "roughly" by someone who has much less knowledge than you two.
Thank you for everything you have already done and thank you in advance for future studies.
Albert
Thank you, I had already taken these titles into account following your last message. I will put them through the mill of my algorithm and if necessary include them in my strategy. But for that, I just need to find a few hours of peace in my life as an overbooked future rentier 😉
Good morning,
Thank you for this very interesting article.
For BTI, I therefore understand that the analysis was made on the basis of US data.
With a view to buying on the London market, I tried to recalculate the dividend on my side: For the 2012 financial year, a total dividend of £1.38 was paid in 2013. The closing price for 2012 being 3121 GBp, I arrive at a yield of 4.41%. And if we assume an increase of approximately 4% in the dividend for the 2013 financial year (i.e. £1.45 paid in 2014), I arrive at a yield of 4.47%.
How come I don't get the same orders of magnitude of performance as those cited in the article (5.64%)?
Can the yield be so different depending on the place where you buy? In which case, we should not only ask ourselves the question of taxation…
Thank you for your enlightenment.
Good morning
I will allow myself to answer before Jean-Louis. Certainly the latter will have additional information.
For me, the difference comes not from a gap between the London and NY quotes but from a difference in the calculation method.
Indeed, some sites like Yahoo Finance give a yield based on the last dividend paid annualized, while others like Financial Times give the yield over the last twelve rolling months (Trailing Twelve Months). I prefer the latter variant.
With the first method we have 5.5% of yield while with the second we are at 4% of yield (for London or NY).
On dividendes.ch, in my algorithm, I prefer to use the average annual yield which avoids this kind of confusion, as well as creating false signals (sudden increase in yield due to a significant drop in price).
In short, the lesson of all this is that we must be aware that one figure can hide another and above all that we must not focus on the yield alone. This is certainly an important figure, but the more we invest in the long term, the more this ratio loses its interest.
Finally, regarding taxation, it's the same, it's certainly relevant to be attentive to it, but in the end, unless you don't declare anything, part of your income still ends up in the coffers of one State or another. Some are a little more advantageous, but once again, in the long term, it's the intrinsic qualities of a security that are the most important.
Thank you Jerome for this answer.
I admit that I have looked at the problem in every way, but I never come across a yield of 5.5%.
Morningstar (3.84%): http://tools.morningstar.co.uk/uk/stockreport/default.aspx?tab=10&vw=div&SecurityToken=0P00007O1O%5D3%5D0%5DE0WWE$$ALL&Id=0P00007O1O&ClientFund=0&CurrencyId=GBP
Financial Times (3.96%): http://markets.ft.com/research/Markets/Tearsheets/Summary?s=BATS:LSE
It is clear that we should not focus on this value alone, but there is still a huge gap...
Otherwise, what do you mean by "average annual yield"? The sum of dividends paid over the year divided by the price on December 31?
THANKS.
It's simple, the annualized dividend method:
last dividend, multiplied by two (since the company pays a dividend 2x per year) = 3.3*2 =6.6, divided by current price (120.79) = 5.46%
It is clear that in this case this method is not correct because it pays a clearly very different amount between the two dividends of the year.
Yahoo Finance for example uses this method:
http://finance.yahoo.com/q?s=BTI
the average annual dividend I mean over several years, e.g. 5 years to get an idea of the long term yield
Good morning,
I am following this blog with interest, having recently taken the plunge by investing in my PEA. I am considering expanding with US values very soon and in this sense this site seems to offer interesting decision-making assistance.
I have 2 questions though:
– I don’t see any dates on the posts, would it be possible to make them appear?
– which broker to advise?
Hello and welcome Guillaume
Post dates appear under the titles
Regarding the broker, if you are a Swiss resident, I recommend Swissquote for trading and Postfinance for long-term investment.