The Motley Fool

UK dividends to drop in 2020? I’d still buy stocks ahead of Cash ISAs, Bitcoin and buy-to-let

2019 proved to be yet another spectacular year for British dividend investors. Total payouts from ‘UK plc’ hit new record highs of £110.5bn, according to Link Group’s latest Dividend Monitor Report. This represents a huge 10.7% year-on-year rise.

So what did this mean in the real world? For every £20 that share pickers ploughed into the stock market, they got back on average £1.02 in dividends. An impressive return, I’m sure you’d agree. But dig a little deeper and the result isn’t quite as encouraging as it first looks.

Sign up for FREE issues of The Motley Fool Collective. Do you want straightforward views on what’s happening with the stock market, direct to your inbox? Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio. Click here to get started now — it’s FREE!

On an underlying basis — in other words stripping out the contribution of special dividends — total payments rose by a far more muted 2.8%, to £98.5bn. This was the slowest rate of growth since 2014, Link says.

And when you look at underlying growth without currency effects, things get even worse. According to Link Group, dividends rose just 0.8%, the worst rate of growth for three years.

Dividends to fall in 2020?

A rise is still a rise though. And those record levels and special dividends still made plenty of share pickers wealthy. But Link Group says that the pickings won’t be as rich in 2020.

The financial services giant says that headline dividends will fall 7.1% this year to £102.7bn. Underlying rewards will fall 0.7% year on year to £97.9bn, it predicts, while at constant currencies they will rise 1.1%.

Around 40% of UK dividends are paid out in US dollars, Link Group says, and so the huge weakness in the pound last year helped to lift sterling rewards significantly. The domestic currency has recovered more recently, and this overshadows dividend expectations in this year.

Meanwhile Link expects the number of special dividends to fall from the £12bn posted in 2019. This was the second biggest amount on record and the total is predicted to fall back to more “normal” levels.

Stick with stocks!

It sounds like I’m lukewarm on stocks therefore, but not a bit of it! None of the above means investors should be prepared for paltry returns. For 2020, the FTSE 100 averages a whopping 4.2% yield, while the mid-cap space carries a forward figure of 3%. Compare that with the sub-1.5% interest rates that Cash ISAs continue to offer.

Investors would also be better buying stocks than putting their money to work with buy-to-let too. Talk of bulging rents might be all over the news right now but it’s not for me. Aside from the huge upfront costs that come with the purchase of property, landlords also face a galaxy of rising costs on top of the headache of mounting regulation.

And the less said about Bitcoin as a better asset class than stocks, the better. It might have got off to a flyer in 2020, but prices remain far too volatile in my opinion. Compare current prices of $8,750 versus the $13,000 at which Bitcoin was changing hands seven months ago. And big questions over the legitimacy of virtual currencies as long-term assets are still to be answered as we embark on a new decade. You’d do much better tapping into the big dividends that UK share have to offer, I reckon.

A top income share with a juicy 6% forecast dividend yield

Income-seeking investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business that’s throwing off gobs of cash!

But here’s the really exciting part…

Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...

He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Income Share… free of charge!

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.