British investors love their dividend payments, but the best payout growth of late hasn’t come from the FTSE 100, says Julian Hofmann in the Investors’ Chronicle. Data from Octopus Investments shows that total cash dividends paid by FTSE 100 companies are still almost 12% below 2019 levels (Covid triggered large cuts in UK dividends in 2020).
By contrast, ex-FTSE 100 firms are on course to pay out 9.2% more than pre-Covid levels. Aim is “the standout performer”, notching up an almost 45% payout rise. Income investors often perceive the FTSE 100 as more dependable than small caps, but the top-10 FTSE payers account for 56% of total dividends, leaving income reliant on the fortunes of a small cluster of firms.
Payouts are at least on a firmer footing than in the past, says Russ Mould of AJ Bell. Between 2014 and 2020, FTSE 100 earnings cover (profit divided by dividend payouts) “never once covered payouts by a factor of two or more”. Cover now stands at 2.07. FTSE 100 dividends are forecast to reach an aggregate £78.6 billion this year and £83.9 billion in 2025, still short of 2018’s record of £85.2 billion.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
FTSE 100 firms have also announced £49.9 billion in share buybacks this year, close to last year’s level. Globally, dividend payouts hit a record $606.1 billion in the second quarter, according to the Janus Henderson Global Dividend index. Banks have been enjoying “strong margins and limited credit impairments”, enabling them to pay generous dividends, says Jane Shoemake of Janus Henderson.
Tech firms and dividends
Meanwhile, technology firms are increasingly shifting from growth to income mode, with Meta, Alphabet and Alibaba the new kids on the dividend block. For income investors, that is “a really positive signal that will boost global dividend growth by 1.1% this year".
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
The war dividend – how to invest in defence stocks as the world arms upWestern governments are back on a war footing. Investors should be prepared, too, says Jamie Ward
-
Literacy Capital: A trust where great returns fund a good causeThere’s plenty to like about specialist private-equity trust Literacy Capital, says Max King
-
An AI bust could hit private credit – could it cause a financial crisis?Opinion Private credit is playing a key role in funding data centres. It may be the first to take the hit if the AI boom ends, says Cris Sholto Heaton
-
How to harness the power of dividendsDividends went out of style in the pandemic. It’s great to see them back, says Rupert Hargreaves
-
Tetragon Financial: An exotic investment trust producing stellar returnsTetragon Financial has performed very well, but it won't appeal to most investors – there are clear reasons for the huge discount, says Rupert Hargreaves
-
How to capitalise on the pessimism around Britain's stock marketOpinion There was little in the Budget to prop up Britain's stock market, but opportunities are hiding in plain sight. Investors should take advantage while they can
-
Reinventing the high street – how to invest in the retailers driving the changeThe high street brands that can make shopping and leisure an enjoyable experience will thrive, says Maryam Cockar
-
Profit from a return to the office with WorkspaceWorkspace is an unloved play on the real estate investment trust sector as demand for flexible office space rises
