Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Robust payouts give investors reasons to be (more) cheerful
Thursday 25 Oct 2018 Author: Steven Frazer

It is raining dividends in the UK with nearly £100bn worth of income payouts set to swell the coffers of investors in 2018.

That’s according to the latest UK Dividend Monitor report constructed by shareholder support specialist Link Asset Services, which has raised its full year estimate by £1.1bn to £99.5bn for the current calendar year.

Recent stock market volatility has been a major concern for many investors, particularly in the wake of the heavy sell down of stocks this month. So robust dividend data will be very welcome news.

Dividends topped a record £32.3bn during the three months to 30 September, a 4.1% increase year-on-year, says the study. Underlying dividends, which strip out one-off special payouts, rose 6.9% in the quarter to hit an all-time £31.6bn high.

The latest Dividend Dashboard data for the third quarter from AJ Bell reveals the FTSE 100 is expected to yield 4.3% for the whole 2018 calendar year. That implied return is set to rise to 4.5% in 2019, based on the anticipated 5.5% annual growth of FTSE 100 dividends next year.

Many UK investors have come to relay on growing dividends as a vital part of their investment strategy. This is because of the exceptional compounding returns that can be earned.


This is illustrated by the ‘600 Club’ recently flagged up by AJ Bell analysts, a list of 11 stocks that have combined for a 600%-plus total return (capital plus dividend reinvested) over the past 10 years.

These 11 companies are described as ‘dividend heroes’, so-called because they have increased their dividend in each and every of
the past 10 years.

‘Only two of these companies were in the FTSE 100 10 years ago, Compass (CPG) and InterContinental Hotels (IHG), showing the importance for investors of going beyond the big name firms of today, and hunting out the smaller, promising companies that will be the winners of tomorrow,’ says Laura Suter, personal finance analyst at AJ Bell.

Mining companies have been a core driver of dividend growth in the last two years, as they recovered from a commodity price crash.

In the third quarter mining stocks overtook the oil sector to become the largest dividend payers, and they also contributed most to dividend growth, up £1.4bn year-on-year. This represents an increase of 41%, according to the UK Dividend Monitor. (SF)

‹ Previous2018-10-25Next ›