BLOG: Weakening dividend payouts

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Laith Khalaf, senior analyst, Hargreaves Lansdown, gives his verdict on the news that dividend payouts from UK companies are losing momentum.

‘The best dividends have come from small packages over the last year, as mid-caps have powered ahead of their big blue chip cousins. Sterling has continued to be a headwind for dividends, but has recently weakened against the dollar, which should provide some measure of respite.

“A lower oil price will also play its part in dividends going forward, though this represents a bit of a double-edged sword for the UK market. While it is positive for the earnings of manufacturers, transport companies, and consumer-orientated stocks, it will take its toll on BP and Royal Dutch Shell, who make up a large part of UK dividends.

“The outlook is positive however. Dividends are growing, albeit slowly, and underlying dividends are expected to grow strongly next year. Gilts are paying 2% and cash is paying next to nothing, yet after the recent sell-off the UK stockmarket is now yielding 3.5%. That looks pretty appealing to income-seekers taking a long term view.’

Equity Income funds

In the short term dividends will rise and fall, but over the long term investors can make a lot of money by harvesting dividends and re-investing them. Or they can pay a professional fund manager to seek out the best opportunities on their behalf.

The UK Equity Income sector is blessed with a plethora of talented fund managers. Woodford Equity Income is a fund which needs no introduction. We also like Threadneedle UK Equity Income in this space.

Investors looking for more mid and small-cap exposure might consider Marlborough Multi-Cap Income.

Finally for more internationally-minded investors, Newton Global Higher Income looks across the globe for the best equity income opportunities.

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