Dividend yields on UK shares are at their highest level, 4.8%, since 2009. Dividends continue to grow while concerns over the trade war, Brexit and interest rates drag on sentiment.
High yields are typically seen as a warning sign that dividends are unsustainable and are also a sign that stocks are out of favour.
In 2018, rising profitability, more special dividends and a weaker pound helped UK dividends rise 5.1% to a record £99.8bn, a touch better than asset servicing platform Link Asset Services’ forecast of £99.5bn.
In its latest report, Link Asset argues investors are being far too pessimistic as dividends would have to fall by 25% for the yield to fall back to the 30-year average of 3.5%.
‘If the world does sink into a recession in the next couple of years, or if Brexit goes badly, the drop in dividends is likely to be in the 10% to 15% range, not at the levels currently implied by the market’, comments Link Asset.
Slower dividend growth is expected this year, forecast at 4.2% to £104.1bn.
WHICH COMPANIES PAID OUT THE MOST IN 2018?
Cigarette seller British American Tobacco (BATS) contributed the most to dividends last year, accounting for nearly 20% of growth. The company paid out an extra £0.9m in 2018, resulting in an overall £4.4bn payout.
GlaxoSmithKline (GSK) was among the most generous. Its prospects of remaining in the top five over the next few years may be linked to plans to merge its consumer health division with US rival Pfizer.
Also of note was the banking sector with Royal Bank of Scotland (RBS) and Standard Chartered (STAN) coughing up their first dividend in years while Barclays (BARC) and Lloyds (LLOY) hiked their payouts.
Miners had a standout year, contributing £1 out of every £9 paid by UK-listed companies, higher than the 10-year average of £1 in every £14.
The impact of exchange rates took some of the shine off annual dividend, wiping off £1.3bn in 2018 following a volatile year for sterling.
