UK dividends set for bumper 2017

What would investors have to celebrate these days without company dividends? While most rival investments are damp squibs, dividends can still deliver fireworks.

Feel the yield

King Cash has been dethroned, banished by derisory interest rates and emerging inflation. Bond yields are dismally low and prices are in a bubble. Buy-to-let is going through a taxing time. Stock markets are trading sideways. Yet the dividends keep flowing, and best of all, rising. At the end of October, the FTSE 100 was yielding 3.69%. The benchmark index ended November yielding 3.83% (a rise of nearly 3.8% in a month). By contrast, the average easy access savings account pays 0.43% and continues to fall, according to

If you thought 2016 was good for dividend investors, then 2017 looks set to be even better, with dividends forecast to rise by a whopping 10% from today’s levels. That would be fantastically rewarding at any time, but especially now, when so many other investments are in retreat.

That’s quality

That 10% prediction comes courtesy of Michael Clark, portfolio manager of the Fidelity MoneyBuilder Dividend Fund. Clark is cautious about the outlook for the UK economy in 2017, and says markets will continue to be afflicted by “political and macroeconomic uncertainties,” but he has no doubts about dividends. He says quality dividend income payers remain hugely attractive in today’s low-yield environment.

They look particularly attractive compared to bond yields, with 10-year UK gilts yielding just 1.39%. Clark says sterling looks set to stay relatively low next year, although he doesn’t expect to see any further falls in the currency. He concludes that this should continue to support share prices in the UK as most of the large companies generate the majority of their revenues and profits in US dollars, concluding that there’s good momentum in company earnings and dividends.

Very, very Foolish

Now that’s just one man’s view but it supports the faith we have in dividend-paying stocks at the Fool. That’s because we know that dividends make up three-quarters of your total returns from investing over the long run, provided you reinvest them for future growth.

We also know that dividends don’t just provide a base rate-busting income – 3.83% is more than 15 times base – they also offer a rising income as companies endeavour to increase their payouts over time. If dividends do increase by 10% next year, a crude calculation shows that money you hold in, say, a FTSE 100 tracker today will be yielding the equivalent of 4.21% in a year’s time. That yield should continue to rise, year after year.

High income

Some FTSE 100 stocks offer even more generous income. Oil giants BP and Royal Dutch Shell yield 6.88% and 6.43% respectively. Utilities Centrica and SSE yield 5.77% and 6.07% respectively. Pharmaceutical giants AstraZeneca and GlaxoSmithKline yield 4.97% and 5.47%.

These are stonking income levels, although you must accept that they’re not guaranteed. One or two dividends may be cut, but most look set to put on another dazzling show in 2017.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, BP, Centrica, and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.