Which companies are on our updated UK dividends watchlist?

With savings yields higher than they’ve been in years, income investors could be tempted just to park their money in cash and not worry about the risks of investing in the stock market. While holding more cash than usual is sensible right now, leaving the market completely won’t help out-run inflation over time. Real yields (after inflation) are still negative and, while it is true that nominal cash yields are ahead of some shares’ dividend yields, good companies can grow their dividends over time and deliver capital returns. 

When diversifying your investment time horizons there is a balance to be struck. Hold cash for liquidity and capital protection plus a short-term nominal yield. Alongside this, building positions in the stock of good companies is a smart play for the future.

In this report, our UK dividend watchlist shows some of the companies our quantitative tests have led us to place on a watch. These aren’t all buys but we demonstrate where companies are more attractively valued than last time we reviewed the watchlist with light green shading. Where companies have red shading they are more expensive. 

We rate the value of these companies based on their history versus the market, which importantly allows for the fact some sectors are naturally more expensive. Furthermore, we use a second metric that compares company valuations with UK government bond yields. By this measure, we notice many traditional income stocks aren't cheap, due to the fact that rates are sky-high.

This is why a watchlist is useful. Some companies may not be the right ones to buy now, but they should be well worth watching when rates come down. In other words, investors who plan for the next monetary policy regime will be perfectly placed to own some outstanding dividend-paying companies. That doesn't mean pulling the trigger, but investors who prepare are more likely to time their entry well.  

It is always important to conduct further research, so in the report we include links to the last time we took a deeper look at the companies in our Alpha analysis. Companies may have reported financial or trading results since the last time they were covered in Alpha, so review the latest investor relations documents and RNS feeds, plus updates here on the Investors’ Chronicle website.