Make no mistake, there’s a hell of a lot for dividend investors to sink their teeth into right now. Sure, we all need to be that bit more careful when buying stocks in the current environment.
The global economy’s entering a phase of cooling and there are a raft of geopolitical issues (from US-Chinese trade talks, to Brexit, to military conflict in the Middle East) which also threaten earnings all over the globe.
But if you’re on the hunt for big dividend income, there’s never been a better time to be alive. The average forward yield for Britain’s blue-chips sits comfortably above 4%, smashing the current level of inflation below 2%, and destroying the returns on traditional savings products like Cash ISAs.
What’s more, despite the challenging outlook for many UK companies, dividend payments keep going up and up, as a recent report from Link Group shows.
According to the financial service provider’s latest Dividend Monitor study released today, total dividends from London-listed firms jumped 6.9% in the third quarter, to £35.5bn. This remained above the long-term growth rate of 5% per annum and set a fresh record for any July-September period.
Link Group said the advance was thanks to the impact of some particularly-colossal special dividends from mining giants Rio Tinto and BHP Group and some big payouts from banking giants such as RBS. Some positive exchange rate effects were also responsible for the large year-on-year rise too.
Scratch a little deeper, though, and suddenly the need for investors to be careful becomes much more apparent. Link Group’s study showed that on an underlying basis (in other words stripping out the impact of special dividends), payouts from British companies actually dropped 0.2% to £32.3bn.
And on a constant currency basis the drop was even more pronounced, clocking in at 3%, and marking the biggest annual fall for three years. This was thanks to a raft of dividend cuts from major names, including Vodafone and Marks & Spencer.
So what’s the verdict?
Slowing earnings growth across major sectors is obviously having an impact on the rate at which dividends are being shelled out. But that’s not to say UK-quoted companies remain anything but brilliant places to invest in.
As Michael Kempe, chief operating officer at Link Market Services, comments: “The yield on equities is extremely attractive. Dividends would have to fall far more even than during the severe recession a decade ago to bring the yield back into line with historic averages [and] a decline of that size is extremely unlikely.” Kempe notes the average yield for the FTSE 100 sits at a gigantic 4.4% for the next 12 months, while the corresponding mid-cap figure sits at a chunky 3.3% too.
What’s more, so strong are special dividends and positive currency effects right now, Link Group has boosted its estimate for total dividends in 2019. This now stands at £110.3bn, versus £107.4bn previously, and represents a 10.4% year-on-year rise.
The worsening macroeconomic environment means you need to be that little bit more careful when buying shares today than it was a year ago. However, it’s clear that making a lot of money with some well-selected UK stocks is still very possible. So get investing in Britain’s blue-chips today, I say!
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Royston Wild has no position in any of the shares 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.