Dividends remain key to investment returns this year
Jan 13, 2012
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Earning and reinvesting dividends is the key to making money from stocks. According to Barclays Capital, £100 invested in UK equities at the end of 1899 would be worth just £180 in real terms by the end of 2010 without the reinvestment of dividend income. With reinvestment, it would have been worth £24,133.
So it’s good news that the yield on the market looks historically high, while UK dividends have recovered to 2008 levels, according to shareholder roll administrator Capita Registrars, which reckons payouts are set to increase further.
“With company balance sheets the strongest they have been since the late 1990s, in terms of net debt to profits”, there is a “solid foundation” for dividend growth, says Alex Breese of the Neptune UK Special Situations Fund.
Broker Oriel is pencilling in 7% growth in UK dividends in 2012. With the outlook for capital growth unpromising, firms with secure yields capable of resisting downturns (the defensive stocks we’ve been advocating for some time) are likely to be especially popular this year.
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