A good year for UK company dividends

2019 was a bumper year for UK dividend payments. While this may not continue in 2020, with low interest rates, equities are worth remembering.

UK shares produced a double digit increase in dividends over 2019.

Chart showing UK dividend payouts against inflation 2009 - 2019

Over the year, the total paid out in dividends by UK listed companies rose by 10.7% according to the Link Group, a leading firm of registrars. Inflation in 2019 was 1.3%, as measured by the Consumer Price Index (CPI) to December 2019, and 2.2% on the still widely quoted Retail Prices Index (RPI) yardstick.

As the graph shows, the inflation-beating increase follows a broad trend over the last ten years. In 2019, however, the gap between inflation and dividend growth was much larger than the average for the last ten years, of 5.3%. To understand why, look at the two components in Link’s total dividend calculation:

Link does not foresee a repeat of 2019’s special dividend boom in 2020, so it expects overall dividend payments to fall, including a 0.7% exchange rate driven decline in regular dividends.Nevertheless, Link notes that “Compared to other asset classes, equities continue to provide the most attractive income”, a point worth bearing in mind when deposit rates are around all-time lows.

The value of your investment 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.