Dividends make a huge difference to returns. The Barclays Equity Gilt Study 2018 shows that if you had invested £100 in UK equities in 1899, and not reinvested the dividend income, your money would now be worth £203. But if you had reinvested all your dividends, the stake would have grown to £34,758.
However, income investors who rely on UK stocks and funds are missing out on the fastest-growing source of income in the world, says Kate Beioley in the Financial Times. The dividends of Asia-Pacific companies rose 12.7% in the 12 months to the end of May, amounting to a record £215.8bn, compared with £713.1bn of dividends generated in the rest of the world, according to a study by asset manager Janus Henderson.
Since 2009, annual dividends paid out by Asian companies have tripled as the region’s young companies have grown and matured. Payouts from the rest of the world have doubled. Dividend growth was greatest in Asia ex-Japan, where payouts have increased by 162% since 2009; Japanese ones are up by 144%. “One of the markets with the greatest income growth potential is Japan,” says Jason Hollands, managing director of investment manager Tilney, in The Sunday Times: “changes in corporate governance have seen a step change in payouts” in the past few years.
Remember, too, that UK income funds rely on a few big firms to generate income, says Ian Cowie in The Sunday Times. The ten biggest dividend-paying companies in the UK delivered more than £1 of every £2 paid out by UK plc last year. By contrast, the world’s ten biggest dividend-payers paid out £1 in every £9 of global equity income, which means global income is less dependent on a few high yielders. “Dividends no longer end at Dover.”