How are TD customers making the most of dividend joy?

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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

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

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Astrazeneca 02/02/17 Full year 17/02/17 20/03/17 3.95

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BP 07/02/17 Full year 16/02/17 20/03/17 7.45

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GlaxoSmithKline 08/02/17 Q4* 23/02/17 13/04/17 5.83

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Rolls Royce Holdings 14/02/17 Full year 02/06/17 03/07/17 4.02

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HSBC Holdings 21/02/17 Full year 23/02/17 06/04/17 6.19

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Lloyds Banking Group 22/02/17 Full year 07/04/17 17/05/17 2.05

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Centrica 23/02/17 Full year** 12/05/17 23/06/17 5.49

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Barclays Plc 23/02/17 Full year   April 2.97%

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RBS Group 24/02/17 Full year No dividend No dividend 0%

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Aviva 09/03/17 Full year 06/04/17 17/05/17 3.68

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Sainsbury (J) 16/03/17 Q4* 12/05/17 08/07/17 4.46

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Tesco 12/04/17 Full year** No dividend No dividend 0

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Unilever Plc 20/04/17 Q1 09/02/17 15/03/17 2.98

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Royal Dutch Shell 04/05/17 Q1 16/02/17 27/03/17 8.03

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Vodafone Group 16/05/17 Trading update 19/11/16 03/02/17 5.11

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SSE Plc 17/05/17 Full year 19/01/17 17/03/17 5.95

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National Grid 18/05/17 Full year 01/06/17   4.37

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Royal Mail Plc 18/05/17 Full year 08/12/16 11/01/17 4.49

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Marks & Spencer Group 24/05/17 Full year 17/11/16 13/01/17 4.52

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* = 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.

We offer our services on an execution-only basis with opinions provided by TD or one of our partners in some circumstances on whether to buy a specific investment. Please note that none of the opinions we provide are a personal recommendation, which means we have not assessed your investing knowledge and experience, your financial situation or your investment objectives.

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.

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