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Shareholders in UK companies have been paid £1 trillion in dividends since 2000, according to data from the Dividend Monitor from Capita Asset Services.
Yesterday, pay-outs from UK plc toppled the £1 trillion mark, the final pound being paid out by property company, LSL Property Services. The first pound of the new millennia was paid by Next (NXT) sixteen years ago, and that year UK companies went on to distribute £42 billion in dividends.
Last year, dividend pay-outs reached £79.4 billion, nearly double the income to investors in 2000. This year, Capita predicts dividend pay-outs will reach £82.5 billion – and it has never been more welcome.
As the Bank of England dropped base interest rate to an even lower record level of 0.25% last month, bond yields have tumbled with it. A 10-year gilt now pays a yield of 0.78% – just five months ago, you could have got a rate of 1.7%. For investors looking for income, equities are increasingly the only option available.
Income Paying Assets Essential for All Investors
In fact, whether you are investing for growth or income, you should include dividend paying stocks in your portfolio. The power of compound interest means that reinvested dividends can help grow your savings at a far faster rate than just capital growth alone. It can mean an extra 10% a year, every year – assuming a yield of 5% over a 10-year period.
This means that income-paying assets should be part of an investor’s portfolio whether they are investing for retirement, or in retirement. During the accumulation stage of pension saving it is incredibly important to maximise your contributions. Thanks to compound interest, savings made early on have the biggest impact.
For those investors already in retirement, dividend-paying stocks can provide an income in place of a worker’s wage, meaning you do not need to drawdown on your capital, and threaten your future financial health.
“With interest rates and bond yields falling ever lower, income seekers have increasingly turned to shares in recent years to provide for their needs. Indeed, it is unlikely that alternative asset classes will see their yields match equities in the near future,” Justin Cooper, of Capita Asset Services said.
“Savers increasingly responsible for their own prosperity in retirement must look beyond low earning savings accounts if they are to accumulate enough money by the time they retire. Asset managers must likewise help their corporate clients meet ballooning pension liabilities.
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