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