Investors have endureda tough 12 months, but dont be misled by short-term volatility. Holding stocks and shares is still a financially rewarding thing to do.
The FTSE 100 may be 13.5% lower than it was one year ago, but thats only a paper loss, unless you plan to sell your holdings today. If you can dragyour eyes away from todays crashing indicesyoull see the long-term charm of investing lies elsewhere.
2015 isthought of as a tough year for stock markets but newresearch fromCapita shows that underlying dividends hit a record high of 84.6bn, after rising an impressive 6.8%. Tens of billions have been dished outto shareholders for doing nothing apart from holding company stocks.
True, UK companies paid out 10% more in 2014 than they did in 2015, but that figure was distorted by the massive one-off special dividendfrom Vodafone,funded from the sale of Verizon Wireless. 2015 can hold its head up high. Most seriousinvestors know that dividends produce around 40% of their total stock market returns, providedyou reinvest them for growth, and Capitas figures shows why they are so highly prized.
Many will be surprised by last years strong growth, given the spike inhigh-profile dividend casualties, withCentrica, Standard Chartered, Tesco, Sainsburys, Anglo American and Glencore among thosedumping their dividends. But that just confirms just how resilient dividends are. Companies are loathe to cut them if they can avoid it, witness how Anglo American held the line until the last minute, while BP and Royal Dutch Shell are doing all they can to keep the income flowing.
Dividends also help investors benefit from business growth and wider economic trends, such as last years 7.7% dollarsurge against sterling. Two fifths of UK dividends by value are denominated in US dollars, Capita says, rewardinginvestors with2.5bn in currency gains in 2015.
UK-focused companies delivered the strongest dividend growth, notably clothing retailerNEXT and housebuilders such as Barratt Developments, while the financial sector also grew payouts strongly. the FTSE 250 jumpedan impressive 22.6%to 10.2bn, the fastest growth since 2011. The FTSE 100 posted 5.5% growth to 73.9bn.
Capita warns that 2016 will be tougher. Recent commodity sector cuts will start feeding through to the figures, as will cuts bysmaller oil producers. The takeover ofSAB Miller will remove 1.3bn from the UK pot. Underlying dividends will fall 0.9% to 83.8bn, which is hardly surprising.
The FTSE 100 is forecast to yield 4% next year, which ispretty impressive given the ongoing meltdown. Its even more temptingwhen you consider that interest rates are unlikely to rise this year, and may be cut instead. In a darkworld, dividends are one of the true bright spots.
One of the joys of dividend investing is that you tap into a rising income stream, which you can invest for long-term growth if you prefer.
If you’re looking for a top dividend stock with great future growth prospects then check out our BRAND NEW report A Top Income Share from The Motley Fool.
While many leading UK companies are slashing their dividends, this FTSE 250 star accelerated its payout at astonishing speed in 2015.
The Fool’s crack team of analysts is so impressed by this company’s ambitious growth plans they’re happy to call it one of the best income stocks on the market today.
Click here to enjoy this FREE, no-obligation wealth report. It will be yours in moments and won’t cost you a penny.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended 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.