Sav­ings rates are at rock bot­tom, but there IS a way to boost your in­come. Share in a record-break­ing...

The Mail on Sunday - - News - By Jeff Pre­stridge

THE na­tion’s in­sa­tiable ap­petite for in­come, driven by years of mori­bund sav­ings rates, is help­ing fuel a div­i­dend bo­nanza. Fed up with banks and build­ing so­ci­eties, swathes of in­come hun­gry house­holds are in­creas­ingly turn­ing to the stock mar­ket for sal­va­tion. In turn, many of the coun­try’s top com­pa­nies are re­spond­ing positively by boost­ing their div­i­dend pay­ments to share­hold­ers.

Re­search con­ducted ex­clu­sively for The Mail on Sun­day in­di­cates this year is on course to be a record one for div­i­dends – with the 100 big­gest stock mar­ket listed com­pa­nies de­liv­er­ing £88.6 bil­lion of ‘di­vis’. Next year could be even bet­ter.

Ma ike Cur­rie, in­vest­ment di­rec­tor at ma­jor as­set man­ager Fidelity, wel­comes the bo­nanza. She says: ‘ Savers have had to en­dure decades of rock bot­tom in­ter­est rates. Thank­fully, ris­ing div­i­dends present an at­trac­tive al­ter­na­tive.’

In this spe­cial re­port, The Mail on Sun­day ex­plains how the re­search was done and cru­cially ex­am­ines the best way read­ers can jump on board the div­i­dend gravy train. A jour­ney of op­por­tu­nity, but not with­out risk.

How the huge haul of in­come adds up

IN­VEST­MENT plat­form AJ Bell has done the num­ber crunch­ing for The Mail on Sun­day.

Us­ing a mix of data on ac­tual div­i­dends al­ready paid this year, and fore­casts from lead­ing City an­a­lysts, it has cal­cu­lated the annual div­i­dend pay­ment that each of the top 100 stock mar­ket listed com­pa­nies in the UK is likely to pay this cal­en­dar year. These com­pa­nies com­prise the FTSE 100 In­dex.

Most are house­hold names such as oil gi­ants Royal Dutch Shell and BP, in­sur­ers Le­gal & Gen­eral and Pru­den­tial and banks Bar­clays, HSBC, Lloyds and Royal Bank of Scot­land. Oth­ers are less fa­mil­iar such as pack­ag­ing group Mondi, prod­uct-test­ing group In­tertek and Chilean cop­per min­ing group Antofa­gasta. All 100 make their prof­its from op­er­a­tions in the UK, in­ter­na­tion­ally or through a com­bi­na­tion of the two.

As a re­sult, their fi­nan­cial health – and there­fore their abil­ity to gen­er­ate suf­fi­cient prof­its to pay div­i­dends to share­hold­ers – is not nec­es­sar­ily just in­flu­enced by the ro­bust­ness of the UK but by the health of the global econ­omy. AJ Bell has then com- pared the fore­cast div­i­dend pay­ments it has cal­cu­lated for this year with the ac­tual div­i­dends that each com­pany paid last year.

Fi­nally, it has trawled through City an­a­lyst fore­casts again to ar­rive at the div­i­dends that the 100 com­pa­nies are likely to pay next year.

The re­sults for the top 30 div­i­dend-pay­ing com­pa­nies this year are shown in the ta­ble on page 65. Data for all 100 com­pa­nies is avail­able at thi­sis­money. co. uk/ di­vi­bo­nanza. For each com­pany, we give the es­ti­mated div­i­dend pay­ments it will make this year and next, to­gether with the in­come paid last year.

The likely div­i­dend growth this year and next is also pro­vided as is the cur­rent div­i­dend yield – the annual in­come in­vestors are fore­cast to get based on the com­pany’s cur­rent share price.

The fi­nal col­umn gives likely in­come this year on a £5,000 in­vest­ment.

AJ Bell’s anal­y­sis ex­cludes spe­cial one- off div­i­dend pay­ments which are al­most im­pos­si­ble to pre­dict. Yet they make the div­i­dend story even more com­pelling.

What our ex­clu­sive re­search re­veals

OUR ex­clu­sive re­search in­di­cates that the stock mar­ket’s 100 big­gest com­pa­nies are likely to de­liver an annual div­i­dend pot to share­hold­ers this year to­talling £88.6 bil­lion, a healthy in­crease of 8.6 per cent on 2017 – and a record. Fur­ther­more, the pot for next year is fore­cast to swell to £ 92.7 bil­lion, a fur­ther 4.6 per cent in­crease.

To put these numbers into per­spec­tive, the com­bined div­i­dends paid by FTSE 100 listed com­pa­nies in 2007 – just prior to the global fi­nan­cial cri­sis – to­talled £49.6 bil­lion. So the an­tic­i­pated annual div­i­dends paid this year by lead­ing com­pa­nies will have risen an as­ton­ish­ing 79 per cent since 2007.

As the data shows, not all com­pa­nies are likely to push up div­i­dends. Of the 100, AJ Bell cal­cu­lates that 82 will in­crease div­i­dends this year with 14 cut­ting them. Four com­pa­nies will keep pay­ments flat. Next year, the re­spec­tive fig­ures are 86 (up), ten (down) and four flat-lin­ing.

Dou­ble-digit div­i­dend hikes this year and next are ex­pected from a host of house­hold names.

They in­clude banks Bar­clays, Stan­dard Char­tered and Royal Bank of Scot­land – whose chair­man Sir Howard Davies in­di­cated last week that a spe­cial div­i­dend might be paid worth 39p per share.

Oth­ers in­clude Tesco, travel com­pany TUI, RSA In­sur­ance, wealth man­ager St James’s Place, the Lon­don Stock Ex­change, con­tro­ver­sial con­glom­er­ate Mel­rose, gold miner Rand­gold Re­sources, Coca-Cola, Har­g­reaves Lans­down, Right­move, and health­care chain NMC Health.

The av­er­age div­i­dend yield this year across FTSE 100 stocks is 4.1 per cent, com­pared with 3.8 per cent last year and a fore­cast 4.3 per cent next year.

In­fla­tion is run­ning at 2.5 per cent. To put the yields into per­spec­tive, the av­er­age in­ter­est rate be­ing paid on a one-year fixed rate Isa is 1.26 per cent.

Why are div­i­dend pay­ments ris­ing?

RUSS MOULD, in­vest­ment di­rec­tor at AJ Bell, says three fac­tors are driv­ing div­i­dend growth.

First, de­spite the eco­nomic gloom­sters, prof­its this year amassed by FTSE 100 com­pa­nies are fore­cast to reach an all-time high of £223 bil­lion.

That is higher than the pre­vi­ous peak of 2011 when boom­ing prof­its from min­ing firms boosted the over­all fig­ures. Big­ger prof­its usu­ally mean higher div­i­dends.

Se­condly, com­pa­nies are un­der in­creas­ing pres­sure from share­hold­ers to spend – or al­lo­cate – prof­its ef­fi­ciently.

Mould ex­plains: ‘ Low in­ter­est rates mean it is unattrac­tive for com­pa­nies to keep their prof­its in the bank.

‘So af­ter pay­ing taxes, any in­ter­est on debt, and mak­ing any cap­i­tal in­vest­ment nec­es­sary to keep com­pet­i­tive, com­pany boards have to de­cide what to do with any re­main­ing sur­plus.

‘ They can ac­quire ri­vals, pay

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