New: Bur­ford Cap­i­tal / Jupiter US Smaller Com­pa­nies Up­dates: John­son Matthey / B&M

Ro­bust pay­outs give in­vestors rea­sons to be (more) cheer­ful

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It is rain­ing div­i­dends in the UK with nearly £100bn worth of in­come pay­outs set to swell the cof­fers of in­vestors in 2018. That’s ac­cord­ing to the lat­est UK Div­i­dend Mon­i­tor re­port con­structed by share­holder sup­port spe­cial­ist Link As­set Ser­vices, which has raised its full year es­ti­mate by £1.1bn to £99.5bn for the cur­rent cal­en­dar year.

Re­cent stock mar­ket volatil­ity has been a ma­jor con­cern for many in­vestors, par­tic­u­larly in the wake of the heavy sell down of stocks this month. So ro­bust div­i­dend data will be very wel­come news.

Div­i­dends topped a record £32.3bn dur­ing the three months to 30 Septem­ber, a 4.1% in­crease year-on-year, says the study. Un­der­ly­ing div­i­dends, which strip out one-off spe­cial pay­outs, rose 6.9% in the quar­ter to hit an all-time £31.6bn high.

The lat­est Div­i­dend Dash­board data for the third quar­ter from AJ Bell re­veals the FTSE 100 is ex­pected to yield 4.3% for the whole 2018 cal­en­dar year. That im­plied re­turn is set to rise to 4.5% in 2019, based on the an­tic­i­pated 5.5% an­nual growth of FTSE 100 div­i­dends next year.

Many UK in­vestors have come to re­lay on grow­ing div­i­dends as a vi­tal part of their in­vest­ment strat­egy. This is be­cause of the ex­cep­tional com­pound­ing re­turns that can be earned.

WHY DIV­I­DENDS ARE SO HIGHLY VAL­UED

This is il­lus­trated by the ‘600 Club’ re­cently flagged up by AJ Bell an­a­lysts, a list of 11 stocks that have com­bined for a 600%-plus to­tal re­turn (cap­i­tal plus div­i­dend rein­vested) over the past 10 years.

These 11 com­pa­nies are de­scribed as ‘div­i­dend he­roes’, so-called be­cause they have in­creased their div­i­dend in each and ev­ery of the past 10 years.

‘Only two of these com­pa­nies were in the FTSE 100 10 years ago, Com­pass (CPG) and In­ter­Con­ti­nen­tal Ho­tels (IHG), show­ing the im­por­tance for in­vestors of go­ing beyond the big name firms of to­day, and hunt­ing out the smaller, promis­ing com­pa­nies that will be the win­ners of to­mor­row,’ says Laura Suter, per­sonal fi­nance an­a­lyst at AJ Bell.

Min­ing com­pa­nies have been a core driver of div­i­dend growth in the last two years, as they re­cov­ered from a com­mod­ity price crash.

In the third quar­ter min­ing stocks over­took the oil sec­tor to be­come the largest div­i­dend pay­ers, and they also con­trib­uted most to div­i­dend growth, up £1.4bn year-on-year. This rep­re­sents an in­crease of 41%, ac­cord­ing to the UK Div­i­dend Mon­i­tor. (SF)

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