Don’t Panic, Dividends Are Doing Fine

There have been anxious flutters about the prospects for UK dividend income lately, following news that company payouts grew just 1.2% in the year to 30 June.

That’s the lowest quarterly total since 2010, according to Capita Asset Services, although UK companies still paid out a generous £25.8 billion.

Slowing company earnings and stronger sterling were largely to blame.

The figures have caused a bit of a stir, but there’s no need to panic. The truth is that dividends are in a good place right now, and there is more growth to come.

Keep Calm And Carry On Banking Those Dividends

That’s the conclusion of a new report by SPDR ETFs, the ETF brand of State Street Global Advisers. It said that contrary to recent market announcements, “there is no real sign of an overall decline in dividend payments or dividend growth for UK companies.”

Dividend rates remain positive, they are merely growing at a slower rate, it said.

Panic over.

Nine Times Better Than Cash

Dividends matter, given that they generate about 40% of your total return from the stock market, provided you reinvest your income for growth.

It matters more than ever in today’s low interest rate world.

The average savings account currently pays 0.64%, according to, but you can get eight or nine times that return by investing in top FTSE 100 blue chips.

Mobile phone giant Vodafone, for example, currently yields a beefy 5.6%. 

Cash Is Crashing Again

Even if dividend income has grown a sluggish 1.2% in the past 12 months, at least it is growing. One year ago, the average savings account paid 0.70%.

That means the return you get on cash has fallen by 8.5% in the last 12 months.

Stay calm, dividend fans. You are still thrashing cash.

Plenty Of Foolish Fun

You can thrash it even further by singling out those stocks that can boast a proven track record of stable or increasing dividend payments over the longer term, says Eleanor Hope-Bell, UK head of SPDR ETFs.

She doesn’t name any individual companies, but Motley Fool writers aren’t famed for their reticence, and have picked out a string FTSE 100 companies that are rapidly increasing their dividends.

Check Out These Dividend Flyers

They include pharmaceutical giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US), which has just hiked its dividend payout by 6% , taking the yield to a whopping 5.3%. Its share price is down 13% in the last 12 months, as profits dip and the Chinese bribery scandal intensifies, and this could be a rare opportunity to buy Glaxo at a discount.

Where there’s smoke, there’s often a fiery dividend. Imperial Tobacco Group (LSE: IMT) (NASDAQOTH: ITYBY.US) has a stunning record of increasing its dividend payout by more than 12% each of the last five years. Right now, it gives you an income of 4.4%. Tobacco companies are feeling the heat from health campaigns and smoking bans, but the e-cigarette market could offer a slow-burning growth opportunity.

Under-fire bank Barclays (LSE: BARC) may only yield 2.4% but it is rapidly repairing a dividend destroyed by the financial crisis. Analysts predict a 20% hike in this year’s payout, followed by another 40% or so in 2015, which would send the yield rocketing to 5.2%.

Who’s panicking now?

All three companies are hiking their dividends by far more than 1.2% a year. To learn more about how dividends can power your portfolio, download our brand new report How to Create Dividends For Life. It's completely free, so click here now!


Harvey Jones has no position in any shares mentioned. The Motley Fool recommends GlaxoSmithKline.