DIY Investor Magazine
| August 2017
24
THE QUEST FOR INCOME: GOOD NEWS
FOR INVESTORS AS DIVIDENDS HIT
RECORD HIGHS
By Mark Riding
Between April and June this year, the UK stock market
paid out £33.3bn in dividends - 14.5% up on last year
and an all-time record for dividends in the second
quarter.
The good news for investors looking for income is that
the stock market is comfortably ahead of other asset
classes, although picking individual stocks may not fall
within every DIY investor’s risk tolerance.
Much of this growth was fuelled by special dividends
such as the £3.2 billion National Grid paid out after it
sold its UK gas distribution business, and the weakness
of the pound which serves to enhance dividends that
are set in currencies other than sterling; as an example
Shell’s dividend was flat in dollars, but its sterling value
was up 12.6%
However, even net of currency movements and special
dividends, ordinary dividend payments still grew 7.8%
year-on-year – comfortably ahead of inflation at 2.6%
and beating the return on some asset into a cocked hat.
However, the Holy Grail for the income investor is to
find sustainable dividends and a simple test to indicate
whether dividends are sustainable is to compare
dividends per share with earnings per share – the
ALBERT EINSTEIN’S ‘EIGHTH WONDER OF THE WORLD’ –
COMPOUND INTEREST
THE HOUSE BUILDERS CONTINUE TO DELIVER
EXCEPTIONAL RETURNS
dividend coverage ratio; a company that maintains a
dividend that its earnings cannot strictly support could
leave itself vulnerable to a downturn.
Overall FTSE100 companies pay dividends per share
that are much higher than earnings and that gap has
been widening; so, are dividends likely to fall anytime
soon?
As interim dividend reporting season draws to a close,
so far the news for investors has been very positive from
a dividend perspective with strong growth in dividends
being reported across multiple sectors.
The house builders continue to deliver exceptional
returns for their investors as the housing market
continues to be strong driven by the backdrop of
continued record low interest rates.
Elsewhere, we have seen the miners rebuilding their
dividends after a rough ride recently. Rio Tinto recently
increased its interim dividend by 145% to a record level
for its interim. BHP Billiton made a similar very large
increase albeit from a heavily reduced level and they
are still some way short of their previous record levels.
Additionally, Anglo American returned to the dividend
list after missing the past three dividend payments with
a record interim dividend.
The Top five yielders in this sector are Centamin, BHP
Billiton, Vedanta, Rio Tinto and Anglo American
Evraz very recently returned to the dividend list with a
hefty 30 US cents dividend for a yield approaching 9%
from the single dividend; if this is maintained that will
make Evraz the leading yield in the sector.
The insurers have been having a good time of it as well
with good dividend increases across the board. Lloyds
Bank has led the dividend recovery of the banks.
