How are TD customers making the most of dividend joy?

TD Direct Investing (Europe) Limited has been sold to Interactive Investor Limited. The Toronto-Dominion Bank is not responsible for this communication or content herein. None of the information in any of our articles should be considered a personal recommendation to buy or sell based on your circumstances. Remember you may not get back all the money you invest.

2016 was a big year for dividends. According to Capita Asset Services’ Dividend Monitor, £84.7 billion was paid out to investors over the course of the year; that is up 6.6% on 2015.

TD Direct Investing customers were among the beneficiaries, receiving 11.2% more, in total, than the year before.

However, it should be noted that much of this growth in dividend payouts was provided by special dividends. According to the report, “Of the £5.2 billion headline increase in dividends in 2016, £4.8bn was due to the pound’s weakness.” Special dividends (one-off payments) also contributed to the strong overall annual performance.

Other key points to consider from the report are:

  • The underlying total – minus special dividends – rose 2.6% for the full year, reaching £78.5 billion, but dividends would have fallen without FX gains,
  • The top five payers (Royal Dutch Shell, HSBC, GlaxoSmithKline, BP, and Vodafone) comprised 38% of the UK total in 2016, up from one third in 2015,
  • Consumer goods dividends rose 5.1% to £11.8 billion, the only industry grouping with an unbroken record of growth since at least 2007,
  • 26 sectors out of 39 paid out more in 2016 than in 2015, fewer than average,
  • From a sector perspective, the mining sector was down by almost half. There was better news for the consumer goods (as aforementioned) and healthcare sectors, while the oil and gas sector should growth in dividend payouts.

Capita’s outlook for this year is uncertain. The pound’s weakness is likely to keep adding value to dividends as will a return to dividend payouts for some major companies. This, though, is tempered by a reduction in special dividends.

Making the most of dividends

Perhaps the most encouraging statistic to emerge from the growth in dividend payouts last year was the number of TD Direct Investing customers reinvesting. Last year 13% more of our customers utilised our dividend reinvestment service to keep their profits in the market. One of the drivers for this could be the search for income.

Dividends have grown in importance for investors because of the dearth of interest rate growth, keeping returns on cash low. With inflation already running higher than the Bank of England (BoE) base rate (Retail Price Index at 2.5% in December 2016 with the BoE interest rate at 0.25%) investors are losing money in real terms.

The chart below demonstrates the return premium from investing in dividends over the last five years by comparing the returns of a dividend index against the returns of the FTSE All Share, when dividends are not reinvested.

How are TD customers making the most of dividend joy?

Past performance is not a reliable indicator of future results.
Source: Morningstar Direct as at 31st May 2016. All returns in GBP.

The FTSE All Share Price Return, (red) returned 9.9%. This represents the performance when dividends are not reinvested back into the market. The FTSE All Share Total Return index returned 31.2%, reflecting both capital appreciation and income (dividends) reinvested. But the best performing was the FTSE UK Dividend Plus index (green), which returned 43.2%. This underlines the advantage of dividends as the index is made up of the 50 highest dividend-yield UK stocks.

Blue chip dividend payers - calendar of key dates

Speaking of big dividend payers, we’ve taken a look at the 20 most widely held stocks by our customers and brought you a calendar of key dates in the coming weeks.

Stock name Results type Ex-div date Payment 2016 Yield % View report
Tesco (TSCO) 12/04/17 Preliminary Full Year Results N/A N/A 0

View now

Unilever (ULVR) 20/04/17 Q1 Results 04/05/17 07/06/17 2.98 View now
GlaxoSmithKline (GSK) 26/04/17 Q1 Results 23/02/17 13/04/17 5.83

View now

Astrazeneca (AZN) 27/04/17 Q1 Results 11/08/17 11/09/17 3.95

View now

Lloyds Banking Group (LLOY) 27/04/17 Q1 Trading Update 06/04/17 16/05/17 2.05

View now

Barclays (BARC) 28/04/17 Q1 Results 02/03/17 05/04/17 2.97

View now

Royal Bank of Scotland (RBS) 28/04/17 Q1 Results N/A N/A 0

View now

BP (BP.) 02/05/17 Q1 Results 11/05/17 23/06/17 7.45

View now

Sainsburys (SBRY) 03/05/17 Preliminary Full Year Results 12/05/17 08/07/17 4.46

View now

HSBC Holdings (HSBC) 04/05/17 Q1 Results 23/02/17 06/04/17 6.19

View now

Royal Dutch Shell (RDSA) (RDSB) 04/05/17 Q1 Results 18/05/17 26/06/17 8.03

View now

Centrica (CNA) 08/05/17 Trading Update & AGM 11/05/17 29/06/17 5.49

View now

BT Group (BT.A) 11/05/17 Q4 Results 11/08/17 05/09/17 2.93

View now

Vodafone (VOD) 16/05/17 Full Year Results 19/11/17 03/02/17 5.11

View now

SSE (SSE) 17/05/17 Full Year Results 19/01/17 17/03/17 5.95

View now

National Grid (NG.) 18/05/17 Full Year Results 01/06/17 16/08/17 4.37

View now

Royal Mail (RMG) 18/05/17 Full Year Results 08/12/16 11/01/17 4.49

View now

Marks & Spencer Group (MKS) 24/05/17 Full Year Results 01/06/16 14/07/17 4.52

View now

United Utilities (UU.) 25/05/17 Full Year Results 22/06/17 04/08/17 1.39 View now
Rolls Royce Holdings (RR.) 28/07/17 Half Year Results 02/06/17 03/07/17 4.02 View now
Aviva (AV.) 03/08/17 H1 Results 06/04/17 17/05/17 3.68 View now

Source: Company websites, LSE

Past performance is not a reliable indicator of future returns. Note that current yield may not reflect historical yields.

Investing for income

Seeking dividend joy proved fruitful last year for our customers, especially those utilising the power of compounding by reinvesting. While 2017 is not forecasted to hit the heights of 2016, seeking dividend income is one way investors can make their money work harder.

If you’re looking for a way of investing in stocks that have a strong record for dividend yields you can also do this through investment funds that specialise in income.

Neither industry information nor third party recommendations reflect the opinion of TD Direct Investing, and publication on this website does not constitute an endorsement. Industry news is provided for information purposes only. Occasionally, an opinion about whether to buy a specific investment may be provided by third parties. The content in Investing News is not a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives.

Services offered on an execution-only basis. If you have any doubt over the suitability of a particular investment for you or if you are uncertain how the pensions rules affect your personal circumstances then you should seek independent financial advice.

Past performance is not a reliable indicator of future results.

Get started with a Stocks & Shares ISA today

Invest either a lump sum or monthly amount and make the most of your ISA allowance with our easy to manage, tax efficient Stocks & Shares ISA.

The tax treatment of our Stocks & Shares ISA may be subject to change and depends on the individual circumstances of each investor.

Start Investing Today