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

The FTSE 100 may be continuing to underperform international indices, but the index nevertheless has risen by an impressive 8% year to date — and this excludes dividends. Having smashed through the symbolic 8,000— point barrier, the index currently rests on 8,105.64 points.

FTSE 100 macroeconomics

After meeting the Bank of England’s (BOE) CPI inflation target rate of 2.0%, on 2 August interest rates are gradually on their way down. At its most recent meeting on 7 November the BOE decided to reduce interest rates by 0.25 basis points from 5.00% down to 4.75%.

Following this announcement, the overall price trend for the FTSE 100 remained stable, maintaining its record highs as the BOE’s decision was widely expected by many investors.

Recent figures released by the ONS showed inflation had risen from 1.7% in September to 2.3% in October due to a rise in energy bills. Although this was largely expected, with pressure to keep inflation low, interest rates are expected to be held at 4.75 basis points when The BOE is next scheduled to meet on 19 December.

Whilst the UK economy has now entered into a phase where interest rate cuts are likely, their frequency, and the amount by which they’re cut is dependent on inflation. If inflation rises too much, further cuts will be more gradual.

On the other hand, businesses may need a helping hand. Although the Insolvency Service have recently noted that the number of companies declared insolvent in England and Wales in October this year was down 24% year— on— year, company insolvencies remained high, and if more and more businesses struggle to service their debts interest rate cuts are likely to be more frequent.

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 with a dividend cover ratio of 1 or higher as of 19 November 2024. They may not be the best investments and the dividends and capital itself are not guaranteed.

1. M&G

2. Phoenix

3. Legal & General

4. B&M

5. Vodafone

M&G (dividend yield: 13.2%)

Savings and investment company M&G reported strong H1 results with assets under administration reaching £346 billion, up from £333 billion the year before. This was driven by positive market movements. Underlying operating profit was down 4% to £375 million, but still exceeded expectations.

Going forward, the company aim to grow its Asset Management and Wealth side of the business, so its profits account for 50% of the overall business, whilst beginning to phase out its annuity portfolio and legacy products.

In September this year the company announced an interim dividend of 6.60p which was paid out to shareholders in October. MGN has a cover ratio of 3.8, which indicates that if its strong performance continues, the company is well positioned to maintain dividend payments into 2025.

Our analysts have given the stock a buy rating with an average price target of 239p in the next 12—month period, up 20.27% from its current value.

Phoenix Group (dividend yield: 10.6%)

Savings and retirement company Phoenix Group reported strong H1 results for the 6 months ending 30 June 2024. Operating profits increased by 15% year— on— year to £360 million, driven by growth in Savings, Pensions and Retirement solutions. Cash generation also increased, reaching £950 million, and the company is expected to meet the upper end of its £1.4— 1.5 billion target for 2024.

On 31 October this year Phoenix Group paid a dividend of 26.65p, up from 26.00p the year before. With a cover ratio of 4.6 the company appears well positioned to offer strong dividend payments into 2025.

Our analysts have given the stock a sell rating with an average price target of 521p in the next 12— month period, up 3.91% from its current value.

Legal & General (dividend yield: 9.4%)

Financial services provider Legal & General announced impressive H1 figures with a revenue increase of 39% to £19.8 billion year— on— year and operating profit remained broadly flat reaching £849 million. Strong performance was mostly driven by the Retirement and Retail parts of the business.

Although investor sentiment remains cautious due to high interest rates, the business is in a good position to grow, with plans to expand into markets beyond the UK including Canada, the US and the Netherlands.

In September this year the company paid out a dividend of 6.00p, up from 5.71p the year before. With a cover ratio of 1.9 the company is likely to continue paying a strong dividend into 2025.

Our analysts have given the stock a buy rating with an average price target of 251p, up 14.85% from its current price.

B&M (dividend yield: 9.2%)

Retail store B&M reported stable H1 results with revenue increasing by 4% to £2.64 billion, with revenues in the UK growing by 3.7%. Despite this, higher costs caused operating profits to fall by 1.8% to £258 million.

The company remains confident its full— year EBITDA will be between £620 and £660 million and claims to be well prepared for the Christmas period.

For the year ending 30 March 2024 the company paid a final dividend of 34.70p, up from 34.60p the year before. With a cover ratio of 4.7 the company seems well positioned to continue paying a strong dividend into 2025.

Vodafone (dividend yield: 8.2%)

Telecommunications company Vodafone reported stable H1 results with revenue increasing 1.8% year— on— year to €18.3 billion. This was driven by growth in Africa, Turkey and Other Europe which helped offset slower sales in Germany. EBITDA also increased by 3.7% to €5.4 billion and net debt was down 12% to €31.7 billion.

The company are due to pay a dividend of 2.25¢ to shareholders on 7 February 2025, with a full year target of 4.50¢. This was reduced from 4.50¢ the year before after selling its Spanish and Italian businesses. Vodafone’s cover ratio is 6.9.

Our analysts have given the stock a hold rating with an average price target of 89.15p, up 28.20% from its current value.

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