Over the year, the total paid out in dividends by UK listed companies rose by 10.7% according to the Link Group, a leading firm of registrars. Inflation in 2019 was 1.3%, as measured by the Consumer Price Index (CPI) to December 2019, and 2.2% on the still widely quoted Retail Prices Index (RPI) yardstick.
As the graph shows, the inflation-beating increase follows a broad trend over the last ten years. In 2019, however, the gap between inflation and dividend growth was much larger than the average for the last ten years, of 5.3%. To understand why, look at the two components in Link’s total dividend calculation:
- Regular dividends are typically paid twice or four times a year from the bulk of the total. Companies generally aim to maintain or increase their regular dividends. Investors do not take kindly to regular dividends being cut, so companies wield the axe only when they have no alternative (for example, some of the major banks stopped dividend payments entirely in the wake of the financial crisis). Regular dividends rose by 2.8% in 2019.
- Special dividends, as their name suggests, are one-off payments. These are often associated with corporate reorganisations (for example, the over 20% jump in dividend payments in 2014 was due to Vodafone selling its interest in a US mobile operator and returning part of the proceeds to shareholders as a special dividend). By their nature, special dividends vary more year-by-year and 2019 was a bumper year for them – at £12bn, they were three times 2018’s level. The big payers included mining companies such as Rio Tinto.
Link does not foresee a repeat of 2019’s special dividend boom in 2020, so it expects overall dividend payments to fall, including a 0.7% exchange rate driven decline in regular dividends. Nevertheless, Link notes that “Compared to other asset classes, equities continue to provide the most attractive income”, a point worth bearing in mind when deposit rates are around all-time lows.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.