Are these the best FTSE 100 dividend stocks to watch in June 2024?

The FTSE 100 may be continuing to underperform international indices, but the index nevertheless has risen by an impressive 5.5% year to date — and this excludes dividends. Having smashed through the symbolic 8,000-point barrier, the index currently rests on 8,143 points.

FTSE 100 macroeconomics

CPI inflation rose by 3.2% in the 12 months to March 2024 — down from 4% in January — and far below the peak of 11.1% in October 2022.

Accordingly, all eyes are on potential Bank of England interest rate cuts. The base rate remains at 5.25%, and the market is expecting cuts later this year. However, the bank is concerned that inflation may resurge later this year. And chief economist Huw Pill recently warned that cuts are still ‘some way off,’ despite being ‘somewhat closer.’

Indeed, rate-setters have very publicly disagreed on the direction of travel for some time, though arguably this is a sign of healthy debate. However, with the FTSE 100 now cruising near record highs, it’s possible that investors are placing too much faith in near-term rate cuts, which may not be forthcoming in a volatile economic environment.

For context, after Brexit, the pandemic, the inflation crisis, Russia’s invasion of Ukraine, Silicon Valley Bank and Credit Suisse, alongside several other black swans, investors may not be taking rate cuts for granted. And continued strong wage data and relatively low unemployment means inflation could start to rise again later on in the year.

On the other hand, businesses may need a helping hand. The Insolvency Service recently noted that the number of companies declared insolvent in England and Wales in February 2024 rose by 17% year-over-year to 2,102 firms. And there’s the delistings crisis to contemplate too, with Shell the latest company to warn it may move stateside.

Then there’s the AI-fuelled surge of the US tech stocks to consider. This may be a sustainable rise given the tech advances at hand or may be a bubble that eventually bursts. If the latter, this excess capital may find itself within FTSE 100 dividend stocks until the storm blows over.

This all makes investing in FTSE 100 dividend stocks complex. In particular, the highest dividend yields can be hostage to economic policy — where individual investment cases and changing financial landscapes can create value traps or payout irregularities.

Best FTSE 100 dividend shares to watch

These shares are the highest yielding on the index as of 1 May 2024. They may not be the best investments and the dividends and capital itself are not guaranteed.

1. Vodafone
2. Phoenix Group
3. British American Tobacco
4. M&G
5. Legal & General

Vodafone

Vodafone's recent Q3 results saw total organic revenue grew by 4.7%, a significant improvement on the 1.8% growth of a year ago. Meanwhile, global services revenue rose by 8.8% while the B2B division grew by 5% year-over-year.

CEO Margherita Della Valle enthuses that ‘going forward, our businesses will be operating in growing telco markets - where we hold strong positions - enabling us to deliver predictable, stronger growth in Europe. This will be coupled with our acceleration in B2B, as we continue to take share in an expanding digital services market.’

The company remains one of the largest telecoms companies in Europe, and the current strategy may be delivering. For context, the all-important German sales rose by 0.3% in the quarter. However, the company is actually losing customers in the region, with the revenue growth driven by price increases.

The key risk could remain the debt mountain, which remains multiples of Vodafone’s market capitalisation. However, the FTSE 100 operator has agreed an €8 billion sale of Vodafone Italy to bolster cash reserves and also return €4 billion to investors via share buybacks.

Vodafone remains confident in previous guidance for future underlying earnings — and with a price to equity ratio of just 2 (despite this figure being affected by asset sales), it may be attractive to value investors.

Dividend Yield: 10.98%

Phoenix Group

Phoenix Group saw another excellent set of results in March, with total cash generation of more than £2 billion — in excess of its upgraded target of £1.8 billion for 2023. This included a significant benefit of circa £400 million from the previously announced part VII transfer of Standard Life and Phoenix Life.

CEO Andy Briggs notes that ‘Phoenix's vision is to be the UK's leading retirement savings and income business, and we are making great progress in delivering our strategy to achieve this, as our strong 2023 financial results demonstrate.’

And PHNX also generated just over £1.5 billion in incremental new business long-term cash generation, beating its self-imposed target two years early.

Despite the healthy dividend, the FTSE 100 insurer also maintains a strong balance sheet — a Solvency II surplus of £3.9 billion and a SII shareholder capital coverage ratio of 176%, towards the top end of its operating range of 140% to 180%.

The company now plans to reduce its debt pile by at least £500 million by the end of 2026 and recommended a 2.5% increase in its final 2023 dividend, bringing the total payout for the year to 52.65p. Phoenix also intends to grow its operating cash generation from £1.1 billion in 2023 to £1.4 billion in 2026.

However, mid-April saw Barclays ‘double-downgrade’ its outlook for Phoenix, moving to ‘underweight’ with a 500p price target — the share has now fallen below this figure. Analysts argued that ‘Phoenix faces insufficient cash from operations alone to support management's targets, a weaker capital position than peers, and a change in strategy from historical areas of strength to areas where the group is not meaningfully differentiated.’

Dividend Yield: 10.66%

British American Tobacco

British American Tobacco full-year results saw the FTSE 100 dividend company’s revenue fall by 1.3% at constant currency rates, though rise by 3.1% on an organic basis at constant rates. This was driven by ‘new categories’ growth with revenue from non-combustibles now worth 16.5% of group revenue.

CEO Tadeu Marroco enthuses that ‘2023 was another year of resilient financial performance and delivery in line with our guidance, underpinned by our global footprint and multi-category strategy, despite a challenging macro-environment. New Categories delivered continued volume-led revenue growth and increased profitability.’

However, the FTSE 100 tobacco company will have to pivot fast, having written off £27.3 billion of its US brand portfolio after acknowledging they have ‘no long-term future.’ Compounding the weak combustibles growth, the UK recently announced a ban on disposable vapes which could hit BATS’ long-term ambitions in non-combustible categories — and is also imposing a specific vaping tax as well. This could hit margins if similar legislation is adopted more broadly.

Positively, the titan and competitor Philip Morris International have finally agreed an eight-year long resolution to long running patent disputes on their cigarette alternatives technology. And in addition to the elevated dividend, BATS just revealed plans for a £700 million share buyback in 2024, with a further £900 million pencilled in for 2025 — partially funded by a part disposal in India’s ITC.

Looking ahead, it continues to anticipate low-single digit organic growth in both revenue and underlying operating profit in 2024. But by 2026, the tobacco stock hopes to be achieving between 3% and 5% organic revenue growth.

Marocco recently had to defend the London listing, arguing that moving to the US is not a ‘no-brainer.’

Dividend Yield: 10.04%

M&G

M&G's recent full-year results saw adjusted operating profit before tax rise by 28% year-over-year to £797 million, reflecting ‘a resilient performance in Asset Management, and improved contribution from Life, Wealth and Corporate Centre.’

Accordingly, operating capital generation rose by 21% to £996 million, driven by strong underlying capital generation of £752 million. Over the course of 2022 and 2023, M&G generated £1.8 billion in operating capital — leaving the FTSE 100 company on course to achieve its three-year cumulative operating capital generation target of £2.5 billion by end of 2024.

The Shareholder Solvency II coverage ratio now stands at an impressive 203%, while the company announced a 2023 total ordinary dividend of 19.7p per share.

CEO Andrea Rossi enthuses that ‘this financial performance underscores the importance of our balanced and diversified business model, with strong growth achieved despite continued macroeconomic uncertainty… I am confident about the prospects for M&G as we remain focused on executing our strategic plan.’

Dividend Yield: 9.88%

Legal & General

Legal & General has for years consistently been one of the more popular FTSE 100 dividend shares — in common with Phoenix, insurance is perhaps viewed as a reliable dividend sector.

In full-year 2023 results, LGEN saw operating profit rise slightly to £1,667 million — with Solvency II capital generation at a stable £1.8 billion. However, it also saw record volume across the insurance businesses, including £13.7 billion of institutional annuities and £1.4 billion of individual annuities.

The business generated cumulative Solvency II capital generation of £6.8 billion and is on target to achieve between £8 billion and £9 billion by 2024. This left cumulative net surplus generation over the dividend commitment of £800 million — and for context, Legal & General intends to grow the dividend by 5% for FY24.

CEO António Simões enthused that ‘We are on course to achieve our five-year targets and demonstrated resilience in challenging markets to achieve record new business volumes in pension risk transfer, UK annuities and US protection, increasing our store of future profit. Our international assets under management and alternative assets portfolio continue to grow, as does our position in the UK defined contribution pensions market.’

The company’s Capital Markets Day is scheduled for 12 June.

Dividend Yield: 8.56%

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