Top UK stocks with healthy cash flows and dividend yields
Three promising UK stocks according to Alan Dobbie, co-manager, Rathbone Income Fund

When looking for stocks to buy we concentrate on how much cash they make and how much we’re paying to put them in our portfolio. We appraise cash flow rather than accounting profit because it represents a return more secure than promises by customers to pay later. It is also harder for companies to manipulate.
Businesses with healthy cash flow have the flexibility to repay their debts when they come due, reinvest in their businesses to create future profits, and pay dividends to shareholders. And as for valuation, the price you pay is one of the main determinants of your long-term returns.
While the past decade has not been kind to the UK stock market, we remain enthused about its prospects. Valuations are highly attractive, especially relative to other markets, and the country is still home to many high-quality businesses capable of producing good returns and rising dividends. The following are three companies we own that fit our key criteria and offer attractive and growing dividends.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Three UK stocks to energise your portfolio
National Grid (LSE: NG) was once regarded as a dull but worthy high-yielder. Now the owner of energy networks in the UK and north-eastern US is also something of a growth stock. The company has announced an extraordinary £60 billion investment plan to upgrade its infrastructure to cope with the power system’s shift from fossil fuels to renewable generation.
With thousands of miles of both offshore and onshore cables to be laid in the UK alone, the challenge is great. However, the prize of set, regulated returns on an asset base growing at 10% each year is highly attractive. Importantly, with a prospective dividend yield of 4.8%, rising with inflation, income investors haven’t been forgotten as the UK rushes towards “clean power by 2030”.
UK food retail is another area that rarely sets pulses racing, but we believe that the competitive position of the UK’s biggest supermarket, Tesco (LSE: TSCO), is better than it has been for some time. Rivals Asda and Wm Morrison, saddled with debt by their private equity owners, have been bleeding market share in recent years.
Similarly, the once formidable German discounters, Aldi and Lidl, are now more focused on profitability than gaining market share and opening new stores.
In addition, with over 23 million UK households (82%) in possession of a Tesco Clubcard, the company has incredible insight into consumer spending habits. In time, this should offer a new avenue for improving profit margins. While the surprise increase in employment costs announced in the Budget is clearly unhelpful for bricks-and-mortar retailers, we don’t think it will destabilise the firm’s strong fundamentals.
Assura (LSE: AGR), which owns and develops GP surgeries and private hospitals, is on the front line when it comes to delivering the much-needed upgrade to the UK’s healthcare estate. The Darzi Report into the state of the NHS noted that “the primary care estate is plainly not fit for purpose”, with 20% of GP surgeries predating the NHS itself, and too little of the budget being spent in the community. These findings play neatly into Assura’s plan to develop modern, purpose-built, community-based, primary-care facilities.
Recognising the problem isn’t the same as delivering the solution. More political willpower and firepower may be needed. However, demographic headwinds mean the challenges confronting the NHS are unlikely to diminish.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
How does the Lifetime ISA work? Key LISA rules
What is a Lifetime ISA (LISA) and how much could the government bonus boost your savings by? We look at the perks and the pitfalls.
-
AJ Bell: a fine British fintech going cheap
Opinion Don’t overlook investment platform AJ Bell, a significantly undervalued British business with an excellent financial base
-
Energy infrastructure companies will provide a lift for your portfolio
Opinion Stacey Morris, Head of Energy Research at VettaFi, highlights three energy infrastructure stocks that she'd put her money in
-
QXO: a compelling opportunity in the building materials industry
Opinion The boss of QXO knows how to make a few billion dollars, and aims to repeat the trick. Investors would be wise to back him, says Jamie Ward
-
Microsoft’s partnership with OpenAI is on the rocks
Microsoft’s joint venture with OpenAI, the developer of ChatGPT, appears to be in trouble. What now for the two groups?
-
Carson Block on short-selling and what investors should watch out for when going long
Interview Renowned short seller Carson Block talks to Matthew Partridge about his specialism and where to go long
-
Investors can buy into tomorrow’s top global technology stocks today
Opinion Anthony Ginsberg, manager of HAN-GINS Tech Megatrend Equal Weight UCITS ETF, highlights three technology stocks as he tells us where he'd put his money
-
Drinks maker Diageo gets back on its feet – should you invest?
Diageo has faced one disaster after another over the past two years. Is it finally time to buy?
-
'Seeking out quality and resilience will pay off for patient British investors'
Opinion Gary Channon, chief investment officer of Phoenix Asset Management Partners, and Kartik Kumar, member of the Investment Team, select three stocks
-
Airtel Africa is dialling the right numbers – should you buy?
Opinion Mobile phone services group Airtel Africa is inexpensive and growing fast