British stocks splash the cash

London-listed stocks are paying out record levels of income in dividends.

Reinvested dividends account for the majority of long-term returns from stocks; capital gains only play a small part. So it's good news that British stocks are paying out record levels of income. According to the Capita Dividend Monitor from Capita Asset Services, UK dividends reached £27.2bn between July and September, up 6.8% up on the year before. Strip out special dividends, and underlying growth was still a healthy 5.9%.

The strong dollar helped. Half of the dividends by value from the top 20 payers are declared in dollars, providing a windfall of £600m and raising the third-quarter dividend growth rate by 2.4%. Mid-cap dividend growth jumped by 31% including special dividends; strip these out, and they rose by 11%. In 2015 as a whole, underlying dividends in the FTSE 350 will reach a new annual record of £84.8bn, reckons Capita.

But dividend growth looks set to slow to around 3% next year. The commodity sector looks likely to announce more cuts in payouts, with Glencore already announcing one of £1.5bn. The FTSE 100 is heavily weighted towards energy and mining. The emerging-market downturn has also undermined dividend growth, with Standard Chartered announcing a cut for next year.

The currency effect, moreover, is fading. Mid-caps' payouts are set to keep growing faster as they are less exposed to global turmoil. In all, the UK market will yield around 4% in the next 12 months, which "still compares very favourably to other asset classes".

Recommended

The FTSE 100 is set for a makeover with an influx of new tech stocks
UK stockmarkets

The FTSE 100 is set for a makeover with an influx of new tech stocks

The FTSE 100 – the dullest index in the world – is about to reinvent itself as a host of new firms list on the market. The change is long overdue, say…
24 Jan 2021
Three clean energy stocks for your portfolio
Share tips

Three clean energy stocks for your portfolio

Professional investor Christian Roessing of the Pictet Clean Energy Fund highlights of his three favourite stocks at the forefront of the clean energy…
25 Jan 2021
The MoneyWeek Podcast: let's talk about bubbles
Stockmarkets

The MoneyWeek Podcast: let's talk about bubbles

Merryn and John talk about the many obvious signs of a bubble in certain assets, including tech stocks, TikTok, and stock-trading 12-year olds. It's c…
22 Jan 2021
Eternal growth: how to invest in the future of the drinks industry
Share tips

Eternal growth: how to invest in the future of the drinks industry

Humans have been dabbling in tasty beverages for millennia. Jonathan Compton assesses the key trends in the sector and recommends seven hard- and soft…
22 Jan 2021

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
When will the US stockmarket bubble burst?
US stockmarkets

When will the US stockmarket bubble burst?

With US stocks more expensive than before the Wall Street crash of 1929, there are growing signs of “mania”. But what will push markets over the edge?
22 Jan 2021