In our recent article, we compiled a list of the top 10 Best FTSE Dividend Stocks To Buy Now. In this article, we will take a closer look at GSK plc (NYSE:GSK) and its standing among other FTSE dividend stocks.
Economic Outlook for the UK
Goldman Sachs Research predicts moderate growth for the UK economy in 2025, with GDP rising by 1.2%. This is slightly below the Bank of England’s (BoE) projection of 1.5% and the consensus among economists of 1.3%. However, growth is expected to slow as the year goes on due to trade uncertainties, tighter budgets, and changes in housing policies.
Despite this cautious outlook, inflation is likely to ease through 2025, which could lead to bigger interest rate cuts than the market expects. While most think the BoE will stop cutting rates at 4%, Goldman Sachs sees rates dropping further to 3.25% by mid-2026.
Fiscal Policies and Growth
The UK’s autumn budget provided a near-term boost to demand but points to a consolidation in 2025, likely slowing growth later in the year. Inflationary pressures from public sector pay deals and higher taxes on services are expected to persist in the short term but should ease as wage growth slows and labor market tightness lessens.
Corporate Dividends: A Silver Lining
Amidst these broader economic challenges, UK investors may find some optimism in corporate dividends. AJ Bell’s latest Dividend Dashboard paints a positive picture for FTSE 100 dividends. Analysts expect payouts to grow by 1% in 2024 to £78.6 billion, followed by a 7% bump in 2025 to £83.9 billion.
This strong performance in dividends highlights a contrast to the broader economic challenges, offering a silver lining for investors. Share buybacks remain strong, with £49.9 billion already planned for 2024, on top of £52 billion last year. Combined with £11 billion in expected dividends from the FTSE 250 and £47.2 billion in takeovers, the FTSE 350 is set to deliver a whopping £189.7 billion in total cash returns.
Cash Yield: A Comfortable Beat
That works out to a cash yield of 7.7%, comfortably beating the Bank of England’s 5% base rate, the 3.92% 10-year gilt yield, and the 2.2% inflation rate.
Headwinds for Domestic Companies
Despite this optimism, domestic companies are still grappling with significant headwinds, such as rising costs like National Insurance and minimum wage, all while operating in a sluggish economy.
Investor Sentiment: Falling Interest Rates
Investors are still favoring the US market, but falling interest rates could nudge some back toward UK stocks. Meanwhile, share buybacks remain strong, supporting investor sentiment.
Insider Monkey’s Top Picks
In our previous article, we listed GSK plc (NYSE:GSK) as one of the top 10 Best FTSE Dividend Stocks To Buy Now. Here’s a closer look at why:
Why Invest in GSK plc (NYSE:GSK)?
- Strong sales growth: 9% sales growth and 19% profit growth year-to-date, driven by Specialty Medicines and pipeline progress.
- Expanding pipeline: Developments in oncology and HIV, with plans for five major product launches next year.
- Resolved litigation: Most of the Zantac litigation has been resolved, removing a major risk.
Insider Monkey’s Third Quarter Database
Our third-quarter database indicates that 38 hedge funds were bullish on GSK plc (NYSE:GSK), compared to 36 funds in the earlier quarter. Major shareholders include Fisher Asset Management, Arrowstreet Capital, and Renaissance Technologies.
Conclusion
While we acknowledge the potential of GSK as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns within a shorter time frame.
Additional Resources
If you are looking for an AI stock that is more promising than GSK but trades at less than 5 times its earnings, check out our report on the cheapest AI stock. We also recommend checking out our articles on:
- The top wide moat stocks to buy now
- The most important AI stocks according to BlackRock
