Income Investors Paid £97bn in 2014

Dividend payments rose more than 20% last year - but if you take out the one-off special dividend from Vodafone, 2014 dividends proved weaker than expected

Emma Wall 26 January, 2015 | 3:09PM
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Stock investors were paid a record amount in dividends last year – totalling £97.4 billion, up 21% on the previous year. But according to the Capita Asset Services Dividend Monitor if you strip out the one off payment from Vodafone (VOD) following the sale of its stake in Verizon the real figure is a lot less impressive at £78.8 billion, with underlying dividends up just 1.4% in 2014.

The total pay-out was also muted by the strength of sterling, which knocked an estimated £3.5 billion off the total value of dividends, calculates Capita. The loss of supermarket Tesco (TSCO) from the dividend payers list also dealt a blow – costing UK investors £900 million. This is in contrast to the rest of the consumer services firms, which Capita found to be the “stand-out performers” of 2014.

“General retailers and travel firms, buoyed by increased consumer spending power, offset sharply lower dividends from the struggling supermarket sector. Supermarkets will continue to struggle this year,” predicts the Dividend Monitor.

“Tesco’s move will cost investors over £900 million in 2015, and as result, even if it pays an interim dividend, the company, UK’s 19th largest dividend payer in 2014, is unlikely to make it into the UK’s top 300 payers this year. However, the worst performers overall were commodities companies. Mining firms slashed their pay-outs 8%, while oil and gas producers cut theirs 1%.”

Last week, value investor Nick Kirrage of the Schroder Recovery fund, said that Tesco was “pregnant with yield” and the undervalued stock could be reinstated sooner than many expect.

“Right now you get a cheap share price with Tesco and as the dividend is reinstated over the next year or two, you'll get strong dividend growth and hopefully strong share price growth and that's very important for both growth and income investors,” he said.

Looking ahead to 2015, Justin Cooper of Capita Asset Services, says that this year should provide more reason for optimism among income investors, thanks to the surging strength of the dollar. Forty per cent of UK dividends are paid by companies reporting in dollars, so the resurgence of the US dollar will boost pay-outs, with favourable exchange rates accounting for as much as half the growth Capita expec ts from FTSE 100 dividends in 2015.

Iain Armstrong, equity analyst at Brewin Dolphin named Royal Dutch Shell (RDSB) and BP (BP.) as two examples of companies where shareholders will benefit from the strong dollar.

“We do not believe that the Royal Dutch Shell or BP will reduce their dividends in US dollars. Therefore, UK  shareholders can expect a significant increase in sterling terms based on the current exchange rate,” he said.

“We agree with management at both companies who believe that the dividend is sacrosanct.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BP PLC394.10 GBP0.00Rating
Royal Dutch Shell PLC B1,909.80 GBP0.00Rating
Schroder Recovery A Acc261.30 GBP0.42Rating
Tesco PLC295.80 GBP0.00Rating
Vodafone Group PLC124.22 GBP0.00Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar