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UK dividends rise four times faster than inflation

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21/02/2008

Three quarters of Britain’s largest companies raised their dividends by more than the rate of inflation during 2007, according to analysis by Fidelity International.

The analysis reveals that, in the 12 months to the end of December, 77 of the FTSE 100 companies lifted their year-on-year payout by more than 2.1%, the increase in the Consumer Price Index. The analysis is based on data from Dresdner Kleinwort.

Even compared with the old measure of inflation, the Retail Price Index, 73 of the FTSE 100 companies increased their payouts – the amount distributed per share – by more than inflation. RPI stood at 3.1% in December 2007.

The median increase for the FTSE 100 stocks from 2006 to 2007 was 9.6%, more than four times the headline rate of inflation. Of the FTSE 100 companies which paid dividends to shareholders in 2007, 11 decreased the amount year-on-year.

The reinvestment of dividends contributed more than two thirds of the total return to FTSE 100 investors in 2007. While the index rose 2.31% last year, the reinvestment of income took the total return to 7.4%. This was not just a one-year phenomenon.

Sam Morse, manager of the Fidelity MoneyBuilder Growth Fund, said: “Looking back over the past 10 years there are 191 companies in the FTSE 350 which have consistently increased their dividend payouts.

“These companies have, on average, outperformed companies which have cut or held their dividends. Dividend growers returned 117% for investors compared with a flat return for the dividend holders/cutters. This compares to a FTSE 350 market return of 82% or if dividends are stripped out, returns of just 36%.

“To me, consistent growth in dividends is a robust indicator of a healthy company. Obviously the challenge is to be able to identify attractively valued companies that will be able to grow their dividends consistently over the next 10 years. That is my style of investment: to identify this type of company early and to benefit from its outperformance over the longer term.”
 

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