While the stock market continues to be plagued by uncertainty, the FTSE 100 has already seemingly recovered from last year’s correction.
However, a closer inspection reveals that this performance has largely been driven by a handful of companies, with most constituents still on the mend.
But with inflation now under 7% and on track to keep cooling, could 2024 be the year the rest of these companies catch up?
Like with all things in finance, it’s complicated. I’m optimistic that the economic circumstances will continue to improve next year. But there’s no guarantee this will translate into superior stock performance. So with that in mind, here are my predictions for FTSE 100 companies in 2024.
Prediction #1: dividends will be higher
Something that’s gone under most investor’s radar is the stellar performance of dividend shares so far this year. To date, an estimated £83.8bn worth of dividends have been announced by FTSE 100 companies. And based on a general consensus from other analysts, this figure could climb to £89.4bn over the same period next year.
Many income stocks have been dropping like stones, especially in industries like renewable energy and real estate. But, in reality, these industries, on average, are delivering record profits in the face of uncertainty. And that’s a trend unlikely to change next year, in my opinion.
After all, energy prices may be dropping, but last year’s price boom has provided vast amounts of capital to reinvest and increase production volumes. Similarly, real estate is in the gutter from falling property valuations. But most tenants keep on paying, with some firms like LondonMetric Property boasting occupancy in excess of 99%!
Prediction #2: growth will be lower
While 2024 might be on track for another stellar year of shareholder payouts, I don’t think the same is true for growth. The rising cost of debt is a problem and not just for overleveraged companies.
When used correctly, debt is a tool for growth. It allows businesses to raise funds to complete a project or acquisition without diluting shareholders. And providing everything goes according to plan, the cash flow generated from this borrowed investment will be superior to the interest payments, generating shareholder value.
However, now that the cost of borrowing is significantly higher, the number of viable projects companies can pursue has materially dropped. That means fewer opportunities for growth. And while there will undoubtedly be some exceptions, I think it’s likely to see the growth profile of most enterprises slow considerably versus historical levels.
Prediction #3: FTSE 100 will struggle to reach 8,000 points
Toward the start of 2023, optimism about a bounce back in the UK economy had placed forecasts for the FTSE 100 to reach as high as 8,500 points! These expectations have since dropped. And while some experts are still predicting the potential for the UK’s flagship index to breach 8,000, the expected slowdown in growth makes that seem unlikely, in my opinion.
As things stand, I believe 2024 could be a fairly muted period for this index. Upward momentum may resume later in the year if the UK economy proves it can avoid a recession. But with lower growth, higher interest rates and higher prices, 2024 could be more of a slow crawl rather than a steady jog.
