Don’t Lean Too Heavily on the UK for Equity Income

Yields in UK equities may be high but Sarasin & Partners warns that over-reliance on UK market may not be best use of capital in the long term

Karen Kwok 28 June, 2017 | 3:03PM

Investors should be careful not to become over reliant on dividends from UK equities when constructing portfolios, according Sarasin & Partners.

It’s not hard to see why the UK equity market looks attractive to income. When compared to other geographic regions it pays one of the highest income yield – at more than 4%, according to data from Sarasin. Dividends from UK companies rose more than 7% in 2017 while US dividends grew 5.1%, according to the Janus Henderson Global Dividend Index. 

However, Sarasin points out UK companies, on average, pay out almost 70% of their earnings in dividend payments. This makes for a high income stream, but the it can mean less money is re-investd in the business to sustain future growth. Therefore Sarasin says that investing in UK equity income may not be the best use of capital within a portfolio.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Securities Trust of Scotland Ord214.03 GBX0.49

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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