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It’s some time since I’ve felt this bullish concerning the dividend forecast for the UK inventory market.
The newest Dividend Dashboard, from AJ Bell, reveals an analyst consensus for a 1% rise in dividend money this yr. And there’s an extra 7% rise pencilled in for 2025, to achieve £83.9bn.
That wouldn’t fairly get us to 2018’s all-time document of £85.2bn. However we’d miss by solely a whisker.
For the previous few years, analysts have began out with large hopes and pared them again a bit because the months cross, although. However even with that, I nonetheless share the optimism.
Buyback enhance
A fast have a look at the primary couple of days of this week alone reveals dozens of FTSE 100 firms engaged in share buybacks.
Barclays and HSBC Holdings, BP and Shell, BAE Techniques, Tesco, Prudential… they’re all doing it. It’s not just some sectors, it’s throughout the board.
When such a various vary of companies wish to purchase their very own shares at in the present day’s costs, it makes me wish to take part.
And buybacks ought to enhance future per-share dividends.
Dangerous large yields?
Let’s have a look at one of many greatest yields.
Financial savings and funding supervisor M&G (LSE: MNG) is forecast to pay a 9.7% dividend yield in 2024.
That’s not assured, as no dividend ever may be. However we’re inching nearer to the top of the yr, with no apparent issues to this point. And that lifts my optimism.
With such a giant yield, I’m normally cautious. Will there be sufficient earnings to cowl it? What do the following few years seem like? Have we had cuts in recent times, and does future money look a bit weak?
These issues went unsuitable for Vodafone, set to slash its 2025 dividend in half. For years, it simply wasn’t producing the money to offer me any confidence in its large dividends. And that’s lastly come again to chunk.
Future outlook
I haven’t determined whether or not I’d purchase M&G. However forecast earnings look comfortably forward of dividends, with cowl of round 1.35 instances. For this sort of firm, which isn’t capital intensive, I feel that’s wonderful.
There’s been no dividend reduce previously decade, and I see no cause to concern one within the subsequent few years.
There may be particular danger, as M&G is popping out of a tricky patch when individuals pulled again on their use of funding providers. We’re not out of these woods but. And inflation continues to be a fear, holding individuals’s arms extra firmly of their pockets.
However throughout the FTSE 100, I’m seeing equally upbeat earnings expectations. Cowl is a bit skinny in some instances, however it typically seems robust to me.
As a basic warning, the Dividend Dashboard factors out that we’ve had 137 dividend cuts from in the present day’s FTSE 100 shares previously decade. Of these, 74 had been in 2019 and 2020 (and a few, just like the banks, shortly got here again).
Dividend investing is rarely a no-risk technique. However proper now, I do assume the potential reward-to-risk ratio from FTSE 100 dividends may be one of the best I’ve seen for a while.
