Record dividends are "unsustainable", say experts
One-off payouts by the likes of GlaxoSmithKline and Vodafone were behind the spectacular figures over the past 12 months, but are unlikely to be repeated in 2013.
The boom in UK dividends is unlikely to be matched next year, according to a report from Capita Registrars, which claims the record figures have been driven by a number of one-off payouts.
While the group agrees that favourable yields mean that equities are the best option for income-seekers, it warned investors shouldn’t expect UK companies to maintain the same performance in 2013.
"Even without the record special payments, underlying dividend growth has surpassed our expectations with its strength – the upgrade in our forecast for the full year reflects both these factors," said Charles Cryer, chief executive of Capita Registrars.
"We are more cautious about 2013 mainly because it is hard to see the magnitude of special payments being repeated, leaving regular dividends to do the heavy lifting."
Dividends grew 14.5 per cent in the second quarter of this year, pushing the figure for the first half to £5.9bn, almost 2.5 times as much as in the same period last year.
The 12-month prospective yield on all equities is now 4.4 per cent, pushed up by the FTSE 100’s figure of 4.5 per cent.
The prospective yield on the FTSE 250 is 3.4 per cent over the next 12 months, compared with 4 per cent at the end of the first quarter.
The yield on gilts, however, has plummeted, as investors view the instruments as enough of a safe haven to be worth the negative real interest rates.
Over the last three months, Capita reports, the yield on UK Government 10-year zero-coupon bonds has declined by 40 basis points.
The yield on property has held steady at 5.2 per cent, higher than both the FTSE 100 and 250; however, Cryer believes this type of investment has too many drawbacks.
"Given that owning rental property has costs associated with management time and also maintaining the property itself, there is no doubt that equities offer the best income among these main asset classes at present," the report concluded.
Capita Registrars says it forecasts a total dividend of between £79bn and £81bn in 2013 – a slight increase from the £78.3bn it expects for the full year in 2012.
Huge payouts by financial services company Old Mutual, which returned £1bn to shareholders after selling its Nordic business, and GlaxoSmithKline, which shared £277m with investors after selling North American interests, were major contributing factors.
Vodafone is set to offer the biggest payout this year after an increase in the first quarter and a one-off special dividend.
According to data from FE Analytics, 77 out of 102 funds in the IMA UK Equity Income sector hold the company in their top-10.
Last week FE Trustnet
reported that income-focused funds continue to dominate the best-sellers list
, with the most popular funds in the three months to the end of June paying a dividend.
Data from FE Analytics
shows the IMA UK Equity Income sector has outperformed both the FTSE 100 and the IMA UK All Companies sector so far this year.
Performance of sectors in 2012
Source: FE Analytics
FE Alpha Manager Richard Woolnough’s M&G Optimal Income
fund was the second-best seller in the period and is now worth more than £8bn.
The poor growth outlook in the UK was given as the cause of the record payouts, the report concluding: "The worsening global and domestic economic picture has not dented the enthusiasm among British firms to pay dividends."
"Cash flow is still strong, yet corporate investment is very depressed. Dividends are one destination for the large cash surpluses that companies have accumulated as a result."