Income funds should have had a good 2018 as dividend payments rose 51 percent to a record £99.8 billion.
The information comes from Link Asset Services, which also warns that dividend yields on UK shares hit their highest level since March 2009.
As dividend yield is worked out by dividing dividend per share into the share price (then multiplying by 100) high yields indicate weakening share prices.
Link puts the bumper payouts down to a combination of rising profits, slightly better-than-expected special dividends, and the slump in the pound in the second half of the year.
As is typical for dividends, the majority of the payments came from the FTSE 100 stalwarts with mining companies leading the way. Banking dividends also did well, marked by the restoration of RBS’s payout after ten years, as well as Standard Chartered’s. Both banks had been struggling for some time.
British American Tobacco, a company under some pressure given global anti-smoking legislation although now enlarged, made the single largest contribution to growth.
It’s clear that investors looking for income need to focus on equities, The 10-year gilt saw its yield drop back to 1.24 percent in Q4, owing to concerns over the global economy, while cash savings return 1.5 percent and property 2.8 percent.
For 2019, Link forecasts growth of 4.2 percent in headline terms, bringing a total of £104.1 billion, comfortably a new record. Underlying growth (which excludes specials) is set to be 5.3 percent pushing UK payouts to a record total of £101.1 billion.
Justin Cooper, chief executive of Link Market Services said: “2018 was a terrific year for dividends but a terrible one for share prices. That’s pushed yields to extraordinary heights. A very high yield is often a sign of trouble ahead, as investors know that company earnings evaporate very quickly when the economy turns down.
“Dividends are less volatile than profits, as companies tend to smooth the cycle, but they can still be expected to fall if the economy shrinks. We still expect 2019 to break new dividend records, but our forecasts are not especially bullish - one or two companies face difficulties and the easy wins from the mining sector are behind us.”
