The FTSE 100 is throwinga great big dividend party, and everybody is invited.
UK dividends have just hit a third-quarter record after rising 6.8% to a massive 27.2bn, according to new research published today.
Underlying dividends rose 5.9%, while special dividends soared by 25.9%. The strong US dollar, up8% against the pound over the last year, gave the party fresh zingbyboosting the value of dollar dividends when converted into sterling. That added a juicy600m to the punchbowl.
Thelatest UK Dividend Monitor from Capita Asset Services shows that financials are drivingUK dividend growth again, with payouts strong across the whole sector. Highlightsincluded a generous interim dividend from Lloyds Banking Group, itssecond payment this year, as it restarts dividends after six years. There is plenty more to come from Lloydsnext year, when itsyield could top 5% or 6%.
Commodity stocks also showed growth despite the sector shakeout, mostly due to the stronger dollar. However, the outlook for this sector is still troubled, Capita warns.Glencore has already said that its2016 dividends will be cancelled to save the company 1.5bn andshore up its shaky balance sheet.
Trouble At Till
Dividends have also fallen victim to supermarket price wars. Total Q3 payouts fell by 1bn after Tescoscrapped its dividend and J Sainsbury trimmed its investor payouts.
Outside the FTSE 100, the party is in full swing. Mid-caps continued to showdramatically faster growth climbing 30.8% to 2.9bn, Capita says. That is largely because they are more insulated from negative global trends, and havemore exposure to fast-growingUK economy. However, the prospective 12 month yield on the FTSE 100 is notably higher at apunchy4.3%, against3.0% for mid-caps.
It isnt all fun and games. Capita warns theoutlook for 2016 is less rosy. Glencore and stricken bank Standard Charteredwill cut payouts by 2bn in total, and there may bemore cuts from commodity firms unless the prices of metals and minerals recover. Capitastill forecasts total payouts of89.8bn in 2016, an increase of 3.0%, which looks impressive to me in an era of zero inflation and slowing global growth.
Justin Cooper, chief executive of Capitas Shareholder solutions, warns that profits relative to dividends are lower than at any time since 2009andgrowth will slow,but headds: Income investors can take comfort in the fact that equities continue to offer a very attractive yield compared to other asset classes.
In these troubling times, dividends are realpartyanimals. The fact that savers can look forward to income of 4.3% a year from the FTSE 100 next year is remarkable, given the savings rate meltdown.
Experienced investors know that 40% of their total return is likely to come from dividends, provided they are re-invested for growth. Unfortunately, too many savers miss out because they fail to understand this. They simply look at the headline number on the FTSE 100, assume nobody is making any money, and tear up theirparty invitation.
Next year, UK companieswill handoutout nearly 90bn worth of dividends and some of this could be yours, providedyou are willingto take the extra risk of investing in stocks and shares. Partyon!
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