Dividend And Conquer

Dividend And Conquer

almost 5 years ago1 min

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According to a recent report from Link Asset Services (which provides some of the tools that help shareholders manage their stocks), UK company dividend payouts hit a record high in the first quarter of 2019 – and the year as a whole should follow suit 😎

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Since the end of the 2008 financial crisis, regular dividends paid by UK companies to investors have increased every year: 2018 dividends were 85% higher than a decade ago.

That’s thanks to growing profits, low interest rates making borrowing cheaper – and, more recently, perhaps because heightened uncertainty’s left companies unsure about what else to do with their cash 🤷

But 2019’s a particularly bumper year: a special dividend from the world’s second-biggest miner, BHP, has helped put the total value of British dividends on track to exceed £100 billion ($131 billion)…

Annual dividends paid by UK companies (2019 is a forecast)
Annual dividends paid by UK companies (2019 is a forecast)

Income” investors like rising dividends. Among them are the pension funds who look after your retirement kitty, so extra cash from higher dividends (some of which they’ll reinvest) should also benefit you in the long term. For individuals, meanwhile, the lower tax rate that dividends attract is a big plus ➕

The US stands in contrast to the UK: there, share buybacks are the order of the day. According to Goldman Sachs, larger stock ownership among US company management and employees favors buybacks rather than dividends. At the same time, there’s a greater demand for stable income (buybacks can be volatile) from European pension funds and insurance companies compared to US ones.

US companies spend six times as much on share buybacks as European companies. Source: Goldman Sachs
US companies spend six times as much on share buybacks as European companies. Source: Goldman Sachs

Still, dividend-paying companies are rewarded by investors. Shares of US companies that have grown their dividends have slightly outperformed the market this year 📈

“Dividend growth” stocks are up 16% this year versus the market’s 15% rise through April 11th
“Dividend growth” stocks are up 16% this year versus the market’s 15% rise through April 11th
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