After enjoying bumper dividends earlier this year, shareholders faced the news that some high profile names have recently slashed their payouts.
UK-listed companies paid out £19.7 billion in the first three months of 2019 – a first quarter record according to Link Asset Services, with the value of dividends paid out through to 2018
rising by 85%. However in May, Vodafone, Royal Mail and M&S all announced dividend cuts of 40%.
Companies usually share surplus profits as dividends twice a year. With any reductions having an impact on pension and ISA funds as well as individual shareholders, companies are
reluctant to make dividend cuts, even when it may make economic sense to do so.
The early record figures have been attributed to several one-off ‘special’ dividends. For example, the global resources company BHP Group paid a huge £1.7 billion dividend following the sale of its US shale oil interests.
Oil giants, utilities, pharmaceutical, tobacco and financial companies traditionally have had good track records for paying dividends. In contrast, smaller, fast-growing companies often pay low – or no – dividends, as surplus profits tend to be reinvested in the business. Investors may also want to look at equity income funds, which focus on companies with good dividend
Reinvesting these payments can create benefits from higher compound returns. However, dividends can also be a useful way for investors to earn an attractive income from their investments without having to dip into their capital. As so often in investment decisions, the devil is in the detail, now more than ever, so sound advice is crucial.
The value of your investments, and the income from them, can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.