You are here: Home - Investing - Experienced Investor - News -

Dividends rocket to new record high but are they sustainable?

0
Written by:
21/08/2017
Dividends paid out to investors across the globe rose to a new record high during the second quarter of the year, according to the latest edition of Janus Henderson’s Global Dividend Index.

In total around £347m was dished out to investors, an increase of 5.4% on the same period last year.

The UK was the only region which didn’t see a rise, falling 3.5%.  However, this was in large part down to the weaker pound. When allowances were made for exchange rates, the UK saw underlying growth of 6.1%.

Dividends grew across almost all industries and sectors, with financial firms in particular seeing large growth, accounting for half of the global headline increase. Only telecoms firms saw payouts fall slightly.

Alex Crooke, head of global equity income at Janus Henderson, said that the improvement in dividend payouts follows two years in which dividend growth has been rather subdued.

He continued: “The first half of 2017 has been stronger than we expected, and the second half is looking promising too. Moreover, the US dollar has weakened a little further against many currencies since our last report, so it will prove less of a drag on the headline figures in the second half if it maintains its current levels.

“Taking a global approach means a slowdown in any one part of the world has less impact on your overall income level, but investors will be pleased they are enjoying one of those periods when there is synchronised underlying dividend growth across all regions of the world.”

Dividend taxes are changing

Investors who predominantly look for dividends from their share picks should bear in mind that the way dividend income is taxed is set to change.

The government aims to reduce the tax-free allowance on dividend income from £5,000 all the way down to £2,000 from April next year.

The move is likely to see around 90,000 investors hit with a higher tax bill.

Darren Cornish, director of customer experience at The Share Centre, said: “One thing they may wish to consider is selling their investments and repurchasing them within an ISA, sometimes known as ‘Bed and ISA’. Investors need to be aware that they may need to pay stamp duty, if applicable, and that their repurchased holding will be slightly smaller due to the ‘sell’ price being lower than the ‘buy’ price. However once investors have made this switch they have the peace of mind of knowing that their future dividend income as well as any capital gain is tax-free.”

Should investors worry about dividend cover?

Another concern for some investors will be just how sustainable dividends are.

According to research from The Share Centre, dividend cover – a ratio produced by dividing profit after tax by the dividends paid out to investors – is now at its lowest level since 2009, having fallen by 18% in the last year.

Dividends have now exceeded the profits made by the firms paying those dividends for at least the last five quarters, the study found.

Helal Miah, research investment analyst from The Share Centre, said: “Dividend cover is still weakening, and this will ring alarm bells for income investors, especially as the outlook for the UK economy is moderating.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
2380099-euro5454
Watch for the 0% commission on currency trap

Holidaymakers are being misled by 0% commission offers as a currency expert warns bureaux weave extra fees into the rates...

Close