2017 was another fantastic year for investors, with global stock markets bursting through record highs as the bull market powered on. Amid all the excitement it is too easy to overlook another way shares made you richer over the last year – through record dividend payouts.
Break out the bubbly!
Last year, UK companies paid out an astonishing £94.4bn in headline dividends to investors, a rise of 10.5%, well over three times inflation. That is a record high, smashing the previous record set in 2014, according to the Link Asset Services Dividend Monitor.
Investors benefitted from a number of trends last year, including an unusually high number of special dividends, which totalled a whopping £6.7bn. Almost half of this was down to National Grid’s £3.2bn payout from the proceeds of its UK gas distribution disposal.
Great mining fightback
Underlying dividends also grew rapidly thanks to a resurgent mining sector, which continued to bounce back from a tough 2014 and 2015. Miners accounted for a little under half the £8.3bn annual increase in dividends. Sterling weakness was another factor, boosting the value of UK dividends that are declared in US dollars and euros, although the trend slowed in the final quarter as the pound strengthened against the dollar.
The total dividend payout would have been even higher except for the fact that FTSE 100 giants BP, HSBC Holdings and Royal Dutch Shell froze their dividends in dollar terms. Sky cancelled its £360m Q4 dividend, as a question mark hung over its future ownership.
In the longer run dividends will deliver a large proportion of the money you make from investing in stocks and shares, provided you reinvest them back into your portfolio for future growth.
Better still, most companies will continue to pay their dividends even if the stock market falls. The bull run will end at some point but dividends should continue to lay the groundwork for your future prosperity. Over the years, they should make you brilliantly rich.
Justin Cooper, chief executive of Link Market Services, heralded last year’s dividend bonanza: “Record dividends and new highs for share prices gave investors real cause for celebration in 2017.”
He expects underlying dividends (excluding specials) to rise another 3.1% in 2018, with £5.5bn of specials on top. Total headline UK dividends should hit a new high of £95.9bn this year, although the growth rate will slow to around 1.6% year-on-year. That assumes the pound will continue to recover. If Brexit talks hit the wall and sterling slips, the growth rate could be even higher. 2018 should be another great year.
Get rich slow
Link’s research puts the prospective yield for all UK stocks at a generous 3.5% in 2018. That is seven times today’s UK base rate of just 0.5%, and far, far more than you would get from locking into the very best savings account. Just look what the FTSE 100 is yielding today.
Cooper says dividend growth will be “slow and steady” in 2018 but should nonetheless set a new record. Slow and steady is exactly how we like it at the Fool. The stock market isn’t a get-rich-quick mechanism, it is there to build your long-term wealth, year after year. Dividends show you how it is done.
You can get yields of 4%, 5% or even 6% from Britain's top companies, provided you know where to look.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended BP, HSBC Holdings, and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.