UK dividends could top £100 billion in 2014
Dividends payouts by UK companies could reach more than £100 billion this year, with the average equity yielding 4.2%.
The latest Dividend Monitor from Capita Assets Service estimates that dividend growth is set to improve in the year ahead, despite a 1% dip in 2013 – the first fall since 2010.
Last year some £79.8 billion was paid out in dividends, but growth slowed as the year progressed. A decline in special dividends, which fell by two thirds to £2.4 billion, was largely to blame for an overall lacklustre year.
But Capita is estimating payouts could reach £101 billion in 2014 – an increase of 26.6% - though much of this will be contributed by a £16.6 billion special from Vodafone.
Equities are set to yield 4.2% over the coming year according to the monitor. But with gilts now yielding 3% over 10 years the gap between the two asset classes is narrowing, points out Justin Cooper, chief executive of shareholder solutions at Capita Asset Services.
He says: "Growth is still there but it has been slowing sharply. However, the coming recovery in corporate earnings offers a much brighter outlook and will herald a renewed acceleration in dividend payments."
Alice Gaskell and Andreas Zoellinger, co-managers of the BlackRock Continental European Income fund, say this trend is also present across the rest of Europe, where yields are attractive "both in absolute and relative terms" despite coming down over the past 12 months.
"Within European equities, the utilities, telecoms, real estate and energy sectors currently offer the highest dividend yields," say Gaskell and Zoellinger.
The average European dividend yield is 3.3%, but the pair have holdings in the likes of Atlantia, an Italian motorway operator, which offers yield of 4.4% that is expected to rise to 5% in the near future, and Swiss reinsurance company Swiss Re, also on a dividend yield of 4.4%.
Cooper adds: "Equity yields are still very attractive, even stripping out the Vodafone effect, and will provide crucial support for share prices despite the relatively high valuations at present."
This article was written for our sister website Money Observer
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.