Dividends will make a comeback

It's been a miserable year for income investors. But recent months have brought signs that dividends will return to normal.

This year has been a miserable one for income seekers, says Russ Mould of AJ Bell. FTSE 100 firms have collectively “cut, deferred or cancelled” more than £37bn in dividends this year. Yet recent months have brought signs of a return to normal. Sixteen firms have reinstated payouts amounting to £2.7bn for this year or next. 

Expect total FTSE 100 payouts to rise from £59.9bn this year to £70.8bn in 2021. The UK market remains reliant on a few dividend stalwarts: 54% of 2020 dividends will come from just ten firms, including BP, Rio Tinto and GlaxoSmithKline. Overall, the FTSE 100 yields 3.2% for 2020 and 3.8% for 2021. 

US companies prefer stock buybacks – when a company purchases its own stocks, driving up the price – to dividends, notes Spencer Jakab in The Wall Street Journal. The result is that dividends accounted for just 17% of the total return enjoyed by S&P 500 investors during the past decade. But during gloomy periods they come into their own; they accounted for 73% of returns during the 1970s. That is partly because regular dividend-payers tend to be more careful stewards of investors’ capital. It is also because in “bleak times” dividend re-investment becomes crucial. Reinvested dividends compound. The Barclays Equity Gilt Study notes that £100 invested in British stocks in 1899 would be worth £35,790 today in real terms with dividends re-invested. Without reinvestment? £193.

Recommended

Changpeng Zhao: Binance founder undaunted by the crypto winter
Bitcoin & crypto

Changpeng Zhao: Binance founder undaunted by the crypto winter

Changpeng Zhao, the founder of controversial cryptocurrency exchange Binance, has been severely battered by carnage in the sector. But the future is b…
3 Jul 2022
Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Just how powerful is artificial intelligence becoming?
Tech stocks

Just how powerful is artificial intelligence becoming?

An uncannily human response from an artificial intelligence program sparked a minor panic last month. But just how powerful are machines getting – and…
2 Jul 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022

Most Popular

Five dividend stocks to beat inflation
Share tips

Five dividend stocks to beat inflation

During periods of high inflation, dividend stocks tend to do better than the wider market. Here, Rupert Hargreaves pick five dividend stocks for incom…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022
The ten highest dividend yields on Aim
Income investing

The ten highest dividend yields on Aim

Rupert Hargreaves picks the highest-paying dividend stocks on Aim, London’s junior market for small and medium-sized growth companies.
29 Jun 2022