Conservative leader David Cameron became the Prime Minister of UK after 13 years of Labor Party rule. He inherits a high budget and other economic ills as the graph shows below:

Source: Bloomberg BusinessWeek

The British Pound fell steadily against the US dollar during former PM Gordon Brown’s time:

Source: Money Week

One of the main reasons for the lackluster performance of the British economy during the labor rule is the rise in lavish public spending with borrowed funds. For example, the public sector employment is very high in UK. There are about 6.098 million public workers in the country. 7000 more public workers were added to the state’s payroll in fourth quarter of 2009 when private sector jobs decreased by 61,000. Many of the public workers are unproductive and union members with great pay and benefits.

The national business model in the current state is unsustainable according to a scathing report titled Undisclosed and unsustaible: problems of the UK national business model from the Centre for Research on Socio-Cultural Change (CRESC) of The Open University. Many of the cities cannot afford to have so many public sector employees.

From the research report:

“The UK business model of expanding state and para-state employment was never sustainable in the longer term because government expenditure and subsidy are limited. And these emerging problems have been crystallised and focused by the financial crisis which removes the pre-2007 stimulus of public reflation and private asset bubble. Going forward, the UK cannot sustain a reasonable diffusion of prosperity into disadvantaged regions and social groups; while the upcoming public expenditure cuts will aggravate the UK’s national problems.”

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.

The payout ratio is one important factor to consider in addition to the yield when selecting dividend stocks. Higher payout ratios indicate management’s willingness to distribute more of the profits as dividends to shareholders.

The following 6 British ADRs pay more than 5% dividends and their payout ratio is more than 50%:

1.Company: BP Plc (BP)
Dividend Yield: 6.93%
Payout Ratio: 52%

2.Company: British American Tobacco (BTI)
Dividend Yield: 5.03%
Payout Ratio: 72%

3.Company: GlaxoSmithKline plc (GSK)
Dividend Yield: 5.61%
Payout Ratio: 54%

4.Company: National Grid Plc (NGG)
Dividend Yield: 6.18%
Payout Ratio: 73%

5.Company: Unilever Plc (UL)
Dividend Yield: 5.50%
Payout Ratio: 65%

6.Company: Vodafone Group Plc (VOD)
Dividend Yield: 6.20%
Payout Ratio: 71%

Note: Information posted above is known to be accurate. Please do your own reasearch before making any investment decisions.

Another advantage with the companies noted above is that they all have large exposure to emerging markets. For investors who would rather capture the emerging markets growth by investing in developed market firms, these stocks excellent choices.For example, British American Tobacco (BTI) has 63% exposure to emerging markets where the demand for its products are growing exponentially.