3 Hot Dividend Stocks You May Have Overlooked: AstraZeneca plc, Prudential plc And Marks And Spencer Group Plc

These 3 stocks have surprisingly upbeat dividend prospects: AstraZeneca plc (LON: AZN), Prudential plc (LON: PRU) and Marks And Spencer Group Plc (LON: MKS).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With Prudential (LSE: PRU) currently yielding 3.3%, it may be deemed too low for purchase by some income investors. After all, the FTSE 100 has a yield of just under 4% at the moment, so Prudential’s yield is relatively unappealing.

However, Prudential has the scope to increase dividends per share at a rapid rate in future years for two main reasons. Firstly, it has a rather low payout ratio. It currently pays out just 37% of profit as a dividend, which for a mature and stable business seems to be low. Even if Prudential were to instantly double dividends it would still equate to a payout ratio of around 74% and leave it with sufficient profit left over through which to reinvest for future growth.

Secondly, Prudential has superb long-term earnings growth potential. Financial product penetration in Asia remains relatively low and the company is well-placed to benefit from its position as a diversified financial services business moving forward. And with Prudential’s bottom line expected to rise by 9% this year and by a further 8% next year, high levels of dividend growth could be just around the corner.

Overlooked income star?

Also often overlooked for its income appeal is M&S (LSE: MKS). It’s often viewed as a relatively safe retail option that offers a degree of turnaround potential as it seeks to reorganise its supply chain, product offering and online presence. However, M&S also offers a yield of 4.9% and with upbeat dividend growth on the horizon, it could prove to be an exceptional income play.

For example, M&S is forecast to increase shareholder payouts by 7.2% in the next financial year, then by a further 8.1% in the following year. This is possible due to the company’s improving financial performance. Its bottom line is set to benefit from changes made to the business, as well as a growing UK economy, to deliver a rise in earnings of 6% next year and 8% the year after.

Although shares in M&S have disappointed in the last year, being down by 16%, they now offer excellent value for money. For example, they have a price-to-earnings (P/E) ratio of just 11.4, which indicates that upward rerating potential is on the cards.

Huge potential

Meanwhile, AstraZeneca (LSE: AZN) is another company that may offer better income prospects than the market is anticipating. Certainly, AstraZeneca’s bottom line continues to come under pressure from the loss of patents on key blockbuster drugs and as a result, dividend payments have flatlined in recent years. However, it still offers a high yield and long-term growth potential.

In fact, AstraZeneca yields a hugely enticing 4.8% at the present time and with its drug pipeline improving due to the company’s ambitious M&A activity of recent years, its profitability is set to rapidly improve in the coming years. With AstraZeneca’s dividend being covered 1.4 times by profit, it continues to offer a relatively robust dividend as well as the scope for rising shareholder payouts.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of AstraZeneca, Marks & Spencer Group, and Prudential. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »