Improved prospects for income investors

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published 29 October 2024

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.

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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.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.