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.
Subscribe to 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
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
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.
-
Are you one of 15 million people at risk of retirement poverty?
Two-fifths of people in the UK aren’t on track for a minimum lifestyle in retirement, new data shows. Are there steps you can take to boost your pension?
-
150 banking hubs now open across UK – is there one near you?
As the 150th banking hub opens its doors, a Post Office deal that offers basic banking services has also been extended until 2030. We explain what this means for you
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?
Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
Two ways to tap into monopoly profits from airports
Most investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?
The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategy
Ramsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance market
The insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocks
Opinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougher
Opinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global markets
Opinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money