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DIY Investor Magazine
/
September 2016
Investors have turned to equities in search of income
writes Tabitha Haysom
With record low interest rates and falling bond yields,
investors have turned to equities in search of income
and according to data collected by outsourcing firm
Capita Assets Services, UK’s listed companies have
responded by returning £1 trillion of dividends since
2000.
This year shareholders are receiving £325m a day
in dividend payments, outstripping both inflation and
economic growth.
With many expecting interest rates to fall still further and
yields on some UK government bonds turning negative
for the first time, it is desperately difficult for investors
to achieve income but those taking the additional risk
of investing in equities since the turn of the millennium
have been rewarded.
In 2000 listed firms paid out £42bn but this has risen
rapidly over time, increasing by 89% to hit £79.4bn
in 2015; over the same period inflation, measured by
the consumer prices index, was 37%, and the British
economy grew by 73%.
Capita predicts that dividends will be £82.5bn in 2016,
and expects that a total of £2 trillion will be reached well
within the next decade.
Justin Cooper, chief executive of Capita’s shareholder
solutions business, said passing the milestone
highlighted how important dividends were to investors.
‘They are the most important component of returns from
investing in shares over the long term. This is plain to
see when we consider that the FTSE All Share index is
only 14% higher now than it was at the beginning of the
century. But reinvesting all those dividends will have
supercharged an investor’s returns to well over 90%.’
Investors are expected to increasingly turn to the stock
market to boost returns on their savings as inflation
picks up as a result of the decline in the value of the
pound since the vote to leave the EU.
THE QUEST FOR INCOME: DIVIDENDS
‘SUPERCHARGE RETURNS’
Whether you are investing for growth or income,
you should include dividend paying stocks in your
portfolio as the power of compound interest means that
reinvested dividends can help grow your savings at a
far faster rate than just capital growth alone.
Income-paying assets are important when in the
accumulation stage of building a pension pot when it
is important to maximise contributions and thanks to
compound interest savings made early on have the
most impact; for those in retirement, dividend-paying
stocks can provide an income in meaning you do not
need to drawdown on your capital, and threaten your
future financial health.
‘With interest rates and bond yields falling ever lower,
income seekers have increasingly turned to shares
in recent years to provide for their needs. Indeed,
it is unlikely that alternative asset classes will see
their yields match equities in the near future,’ said Mr
Cooper, ‘Savers increasingly responsible for their own
prosperity in retirement must look beyond low earning
savings accounts if they are to accumulate enough
money by the time they retire. Asset managers must
likewise help their corporate clients meet ballooning
pension liabilities.’
‘INVESTORS HAVE TURNED TO EQUITIES IN SEARCH OF
INCOME’
