Why Income Investors Should Buy British Stocks

The conservative party won the general elections in the UK with the British Prime Minister David Cameron returning to power in his second term. Contrary to predictions, the tories won with a majority 331 of the 650 seats. The one positive outcome of the results is that the tories do not have to depend on other parties to form a government and hence can move forward with policy reforms faster.

The conservatives have a lot to work on with many problems facing the UK. The country is highly dividend in terms of concentration of economic output and investments with London and the South beating the abandoned northern areas like Scotland. Though the tories are supposed to encourage private sector participation in economic activities and reduce the size of the government, it has been the other way around for the past few years. For example, the “UK public spending was 36.6% of gdp in 2000, and had edged up over 50% by 2009 and 2010 and now [2013] is still in the range of 49% or so” according to an article by Tyler Cowen in 2013.

From my own article titled”Will David Cameron Bring A New Dawn for UK?” in 2010:

Click to enlarge



From 2000 thru 2007, under Labor party the the real expenditure increased sharply from £411 billion to £606 billion. Most of these money were discretionary spending on health and education.

In recent years Britain has become a nanny state where some people get paid liberally and remain unemployed since it is better to live off the state than work. From the Why work when I can get £42,000 in benefits a year AND drive a Merc? article:

“The Davey family’s £815-a week state handouts pay for a four-bedroom home, top-of-the-range mod cons and two vehicles including a Mercedes people carrier.

Father-of-seven Peter gave up work because he could make more living on benefits. Yet he and his wife Claire are still not happy with their lot.

With an eighth child on the way, they are demanding a bigger house, courtesy of the taxpayer.

‘It’s really hard,’ said Mrs Davey, 29, who is seven months pregnant. ‘We can’t afford holidays and I don’t want my kids living on a council estate and struggling like I have.”

It is about time that the David Cameron government fixes social spending issues such as the above and puts the British economy back on the right track.

While David Cameron failed in economic reforms the last time around, hopefully this time he will succeed in cutting spending and reducing the atrocious tax rates to attract investment capital both from domestic and foreign investors.

With the election uncertainty now over, income investors can focus their attention on British equities. One reason why British stocks are attractive for US income investors is that there is no dividend withholding tax for dividends paid out British firms to American investors. However this rule does not apply to UK REITs. Dividends from REITs are subject to a 20% withholding tax deduction for US investors.

Dividend investors can consider adding the following stocks from the UK in a phased manner:

1.Company: British American Tobacco PLC (BTI)
Current Dividend Yield: 4.14%

2.Company: Unilever PLC (UL)
Current Dividend Yield: 3.13%
Sector: Food Products

3.Company: Vodafone Group PLC (VOD)
Current Dividend Yield: 5.07%
Sector: Wireless Telecom

4.Company:Diageo PLC (DEO)
Current Dividend Yield: 3.02%
Sector: Beverages

5.Company: AstraZeneca PLC (AZN)
Current Dividend Yield: 4.00%
Sector: Pharmaceuticals

6.Company: Imperial Tobacco Group PLC (ITYBY)
Current Dividend Yield: 3.94%

7.Company:National Grid PLC (NGG)
Current Dividend Yield: 4.99%
Sector: utilities

8.Company: Royal Dutch Shell PLC (RDS.A)
Current Dividend Yield: 5.85%
Sector: Oil, Gas & Consumable Fuels

9.Company: Aviva PLC (AV)
Current Dividend Yield: 3.29%
Sector: Insurance

10.Company: GlaxoSmithKline (GSK)
Current Dividend Yield: 5.73%
Sector: Pharmaceuticals

Disclosure: No Positions

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