It has never been a better time to be a UK dividend investor. While the rest of the country concentrates on Brexit (and the possible fallout from a messy divorce from the EU) UK Plc’s profits are surging, and companies are rushing to return this cash to investors.
According to data published in Link Asset Services’ UK Dividend Monitor, the total value of dividends paid by UK companies hit £32.3bn in the third quarter of 2018. That puts the total amount paid by UK companies for the year (including both regular and special payouts) on track to hit £100bn.
This is the highest level of gross corporate payouts in the UK ever recorded. In 2007 for example, the year before the financial crisis, total corporate payouts totalled just under £60bn.
Some sectors have contributed more to the bonanza than others. Mining companies were the largest payers of dividends in the third quarter, according to the data, with banks and oil companies also putting in strong showings.
Tech stocks produced the largest year-on-year increase in total payouts, with a rise of more than 60%, compared to just 40% for the next closest sector (mining). Retail stocks produced the worst showing. Distributions from the retail sector declined nearly 40% year-on-year.
Riding the trend
So, how can you profit from this dividend bonanza? Investing in the FTSE 100 is a good place to start. While the figures above are based on dividends paid by companies in the FTSE All-Share Index (representing 98-99% of UK market capitalisation), the FTSE 100 represents around three-quarters of the entire UK market.
Its dividend credentials have also helped the index outperform other UK indexes over the past 12 months. Including dividends, the FTSE 100 has produced a total return of -3.7% over the past year. Meanwhile, the FTSE All-Share is down 4.1%, and the FTSE 250 is off 6.4%.
At the time of writing, the FTSE 100 supports a hefty dividend yield of 4.4%, compared to just 3.2% for the FTSE 250. According to my figures, this is the second highest yield of any index in the world.
As well as a simple FTSE 100 tracker, you can also profit from the UK’s dividend bonanza with the iShares UK Dividend UCITS ETF (LSE: IUKD). This ETF is a basket of the 50 highest-yielding stocks from the FTSE 350 Index.
All stocks are picked according to their forecast one-year dividend yields, and then weighted accordingly. Higher-yielding companies make up a proportionately bigger share of the fund’s assets.
This isn’t the most scientific approach to building a dividend portfolio, but it certainly works. With a distribution yield of 6.1%, the ETF offers one of the highest yields in the UK equity income fund space, and it only costs 0.4% per annum.
Another income-focused fund is the SPDR UK Dividend Aristocrats ETF (LSE: UKDV). This ETF doesn’t target yield, instead, it looks for dividend sustainability — companies that have 10 consecutive years of payout growth are only considered.
As a result, the distribution yield is lower than iShares’ offering at 4.4%, but if you prefer quality over quantity, Dividend Aristocrats might be a better buy for your portfolio.
No matter what your preference, there are plenty of different ways to take part in the UK’s dividend windfall. What are you waiting for?
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.