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

Positive outlook for UK dividends, but some banana skins remain

0
Written by:
19/12/2017
Dividends from FTSE 100 companies are likely to rise 7% in 2018, paying out £88.5bn, according to the latest AJ Bell dividend dashboard.

With the FTSE’s current level of 7,544, that equates to a yield of 4.3%, significantly higher than the top-paying easy-access savings account (Post Office – 1.3%) or the 10-year government gilt yield of 1.2%.

While this higher income should be supportive for markets in 2018, dividend cover is still a source of concern. ‘Dividend cover’ is the extent to which the dividend is covered by the company’s earnings.

Earnings cover for dividends paid by the FTSE 100 as a whole remains at 1.63 times for 2018. AJ Bell points out this is significantly below the ideal 2.0 level and the level seen in the midst of the financial crisis ten years ago.

The group highlight the ‘dividend danger zone’ where dividend cover looks particularly thin, set out in the table below:

thindividendcover

Dividend concentration is high with financial stocks, particularly the large banks and insurers, likely to be very important for income seekers in 2018, driving nearly half of the FTSE 100’s dividend growth next year. Consumer staples (tobacco, beverages, food retailers) and consumer discretionary (Sky in particular), are also forecast to boost shareholder payouts.

The bulk of the FTSE 100 dividend payments come from a relatively small proportion of the index. The top 10 dividend payers on their own are forecast to represent over half (55%) of the total shareholder pay outs in 2018.

This includes Royal Dutch Shell, HSBC, BP, British American Tobacco, GlaxoSmithKline, Vodafone, Lloyds, AstraZeneca, Rio Tinto and Glencore.

Russ Mould, investment director at AJ Bell, said: “The issue of skinny dividend cover refuses to go away. Earnings cover for dividends remains much thinner than ideal at 1.63 for 2018 and there has been little real improvement here in 2017. Ideally earnings cover needs to be around the 2.0 level to offer a margin of safety to dividend payments, should there be a sudden and unexpected downturn in trading at a specific company, or indeed the UK and global economies as a whole.

“Pearson and Provident Financial are both examples of what can happen in the event of a profits stumble under such circumstances, as both had been offering apparently juicy yields but with skinny earnings cover. Indeed, some of the companies with the juiciest looking dividend yields have dividend cover that looks particularly malnourished at 1.37.”

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

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

The essential Your Money guide to the April 2018 tax changes

As we head into the 2018/19 tax year, a number of key changes take place to existing policies while some new i...

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.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

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...

YourMoney.com Awards 2018

Now in their 21st year, our awards recognise the companies offering the best products and services to consumers

Money Tips of the Week

Read previous post:
2213844-search-mobile-typing-google-information-data-iphone-apple
‘Text-to-switch’ service announced by regulator

Mobile phone customers will be able to switch provider by simply sending a free text message, the communication regulator has...

Close