What would investors have to celebrate these days without company dividends? While most rival investments are damp squibs, dividends can still deliver fireworks.
Feel the yield
King Cash hasbeen dethroned, banished byderisory interest rates and emerging inflation. Bond yields are dismally low and prices are in a bubble. Buy-to-let is going through a taxing time. Stock markets are trading sideways. Yet the dividendskeep flowing, andbest of all, rising.At the end of October, the FTSE 100 was yielding 3.69%. The benchmark index ended November yielding3.83% (a rise of nearly 3.8% in a month). By contrast, the average easy access savings account pays 0.43% and continues to fall, according to Moneyfacts.co.uk.
If you thought 2016 was good for dividend investors, then 2017 looks set to be even better, with dividends forecast to rise by a whopping 10% from todays levels. That would be fantastically rewarding at any time, but especially now, when so many other investments are in retreat.
Thats quality
That 10% prediction comes courtesy of Michael Clark, portfolio manager of the Fidelity MoneyBuilder Dividend Fund. Clarkis cautious about the outlook for the UK economy in 2017, and says markets will continue to be afflicted by political and macroeconomic uncertainties,but he has no doubts about dividends. He saysquality dividend income payers remain hugely attractive in todays low-yield environment.
They lookparticularly attractive compared to bond yields, with 10-year UKgilts yielding just 1.39%. Clarksays sterling looks set to stay relativelylow next year, although he doesnt expect to see any further falls in the currency.He concludes that this should continue to support share prices in the UK as most of the large companies generate the majority of their revenues and profits in US dollars,concluding thattheres good momentum in company earnings and dividends.
Very, very Foolish
Now thats just one mans view but it supports the faith we have in dividend-paying stocks at the Fool. Thatsbecause we know that dividends make up three-quarters of your total returns from investing over the long run, provided you reinvest them for future growth.
We also know that dividendsdont just provide a base rate-bustingincome 3.83% is more than 15 times base they also offer a rising income as companies endeavour to increase their payouts over time. If dividends do increase by 10% next year, a crudecalculation shows that money you hold in, say, aFTSE 100 tracker todaywill be yielding the equivalent of 4.21% in a years time. That yieldshould continue torise, year after year.
High income
Some FTSE 100 stocks offer even more generous income. Oil giants BP and Royal Dutch Shell yield 6.88% and 6.43% respectively. Utilities Centrica and SSE yield 5.77% and 6.07% respectively. Pharmaceutical giants AstraZeneca and GlaxoSmithKline yield 4.97% and 5.47%.
These are stonking income levels, although you must accept that theyre not guaranteed.One or two dividends may be cut, but mostlook set to put on another dazzling show in 2017.
If that has whetted your appetite for top stocks payinga rising dividend,we have a candidate for you to consider right here.
Our crack team of analysts reckon they’ve founda dividend payerwith great prospects, which they name in our NEW report A Top Income Share from The Motley Fool.
While many leading UK companies are slashing their dividends, this FTSE 250 star has been increasing its payout at astonishing speed.
Our analysts areso 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 owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, BP, 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.
