The latest data from Capita Registrars shows that 2011 was a record year for dividend payouts from UK companies.
A total of £67bn was paid out to investors in UK companies in the form of dividends last year.
Capita forecasts an increase of 11% in dividends in 2012, taking the total to £75bn this year.
The rise last year represented the first annual rise in dividend income since 2008. In real terms, dividends remain slightly behind the £77bn paid to investors that year.
A total of 438 listed companies paid a dividend to investors in 2011, which is a slight improvement on the 434 who paid out in the previous year.
In 2012, the gross equity yield for investors in UK listed companies is forecast to reach 4.4%.
Investors looking for income will often include UK equities in their portfolios along with cash, fixed interest securities and property.
Whilst a predicted gross yield of 4.4% from equities appears attractive relative to the interest rate available from cash or the yields from bonds in 2012, it is important to also consider the risk to capital an equity income investor must accept.
Stock markets are likely to remain volatile in 2012. Equity income investors tend to be investing in lower risk stocks, with more defensive characteristics, but the risk profile of these investments still tends to be unacceptably high for more cautious investors when held in isolation.
Diversification can help to reduce overall levels of risk, with cautious investors typically weighting more towards non-equity investments in their portfolios which often experience less volatile performance.
What income investors should be wary of in 2012 is exposing their money to newer sources of income investment. Fund managers are increasingly arguing the case for overseas equity income, to improve the potential returns when compared to UK options.
With higher potential returns always comes greater risk to capital and income. Overseas equity income funds also introduce elements such as currency and political risk to portfolios.
With 2011 delivering a record year for dividend income and this year forecast to be even stronger, we hope that this represents some good news for income investors who have been squeezed in recent years.
Photo credit: Flickr/European Parliament
