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.
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
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||Yield %||View report|
|BT Group||27/01/17 Q3*||29/12/16||06/02/17||2.93|
|Astrazeneca||02/02/17 Full year||17/02/17||20/03/17||3.95|
|BP||07/02/17 Full year||16/02/17||20/03/17||7.45|
|Rolls Royce Holdings||14/02/17 Full year||02/06/17||03/07/17||4.02|
|HSBC Holdings||21/02/17 Full year||23/02/17||06/04/17||6.19|
|Lloyds Banking Group||22/02/17 Full year||07/04/17||17/05/17||2.05|
|Centrica||23/02/17 Full year**||12/05/17||23/06/17||5.49|
|Barclays Plc||23/02/17 Full year||April||2.97%|
|RBS Group||24/02/17 Full year||No dividend||No dividend||0%|
|Aviva||09/03/17 Full year||06/04/17||17/05/17||3.68|
|Sainsbury (J)||16/03/17 Q4*||12/05/17||08/07/17||4.46|
|Tesco||12/04/17 Full year**||No dividend||No dividend||0|
|Unilever Plc||20/04/17 Q1||09/02/17||15/03/17||2.98|
|Royal Dutch Shell||04/05/17 Q1||16/02/17||27/03/17||8.03|
|Vodafone Group||16/05/17 Trading update||19/11/16||03/02/17||5.11|
|SSE Plc||17/05/17 Full year||19/01/17||17/03/17||5.95|
|National Grid||18/05/17 Full year||01/06/17||4.37|
|Royal Mail Plc||18/05/17 Full year||08/12/16||11/01/17||4.49|
|Marks & Spencer Group||24/05/17 Full year||17/11/16||13/01/17||4.52|
* = 2016
** = preliminary results
Source: Company websites, LSE
Past performance is not a reliable indicator of future returns. Note that current yield may not reflect historical yields.
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.
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