Dividends in decline
Numbers published today by Capita Registrars reveal that UK companies cut their dividend payments to investors by £10bn in 2009.
They paid out a total of £56.9bn in last year, which is 15% less than in 2008. Investors in the banking sector were, unsurprisingly, hit the hardest, with cuts of £6bn compared to the previous year.
The research also made the prediction that dividends were unlikely to grow strongly this year, due to struggling economic growth.
Some related research from Exchange Data International suggests that income-seeking investors are now more reliant than ever before on just five income stocks.
47% of all cash dividends paid out to investors in UK companies last year came from BP, Shell, HSBC, Vodafone and Glaxosmithkline. In 2007, the total contribution from these five companies to UK dividend payments was 37%.
Investors looking for a healthy income yield in 2010 and beyond are going to have to accept both lower income and a greater concentration of strong dividend payers within their portfolios. Looking at historic dividend yields will prove to be an unreliable guide to likely yields in the future.
In fact, income-seeking investors will need to explore the yields they can get from higher yielding corporate bonds and commercial property. Both sectors remain quite attractive, and by increasing diversification within a portfolio designed for income, investors can better manage risks to both income and capital.