CASH IN ON THE RECORD BREAKING DIVIDENDS BONANZA

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

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