Derek Pain: Dividends rise as directors remember the shareholders

No Pain, No Gain

Dividends are becoming increasingly important in these low interest rate days. With banks and building societies offering pathetic returns the attraction of some stock market constituents has probably never been greater. And, it is not only the shares of small, perhaps even dubious, companies that provide eye-catching yields. It is not uncommon for elite members of the blue chip Footsie index to produce returns of about 4 per cent and in some cases rather more.

At one time it was not unusual for some highly profitable companies not to bother with dividends. Cash was ploughed back into the business, thus enhancing the share price. Such an attitude wins little support today.

Indeed, many quoted operations seem to be doing their best to hike dividends. In the third quarter of this year, payments reached £20.1bn, nearly 16 per cent higher than the corresponding three months last year. Forecasts for 2011 have been lifted to £67bn, an outlay that would eclipse the past two years. It is not inconceivable that this year's cash distribution could, based on current values, hit a new high.

Capita Registrars, which sponsored the research, said all stock market sections increased payments in the third quarter. The registrars' Charles Cryer observes: "Dividends are growing faster than we expected as UK firms shrug off the worst stock market conditions since 2008 and continue to increase payments to shareholders".

This dividend round is not a short-term fluke, although allowing for inflation there is some way to go in real terms to achieve a record level. But Rob Burgeman at stockbroker Brewin Dolphin, which manages £25bn of funds for 130,000 private clients, has researched the dividend phenomenon and concludes that "income returns have been surprisingly consistent over the past 10 years".

Using Footsie and an index linked to the Association of Private Client Investment Managers and Stockbrokers, he says that since 2002 an income portfolio has produced a total return of 5.6 per cent and an income reward of 3.7 per cent. What is described as a balanced portfolio (containing a much larger proportion of equities) achieved a total return of 5.9 per cent with income at 3.2 per cent.

Mr Burgeman points out that income has held up well in the last few years when interest rates collapsed and returns from bankers – once representing 26 per cent of Footsie dividends – subsided. Oil giant BP, during the same period, for a time cut out payments due to the Gulf of Mexico explosion.

He says many blue chips have achieved incredible dividend growth. He cites Glaxosmithkline where dividends per share have risen from 43.33p in 2002 to 74.44p this year. And unit trusts and the maligned investment trusts have proved to be "useful investments".

Mr Burgeman says diversification is the key. "Putting all one's eggs in one basket is a dangerous course of action. But a well-balanced approach can pay dividends, over the longer term".

Some Footsie shares offer yields exceeding the 5.2 per cent inflation rate. They include insurers Aviva and Standard Life and utility Scottish & Southern Energy. Glaxo's yield is 4.9 per cent. The all-share index returns more than 3 per cent, comfortably covered by earnings. And inflation, providing it is not too prolonged, is not necessarily bad for equities. As Paul Mumford of Cavendish Asset Management says, high inflation can make shares more attractive compared to fixed interest assets. It also gives some businesses the opportunity to adjust prices in their favour.

The no pain, no gain portfolio is not an income exercise and dividends are excluded from quarterly performance calculations. But I am delighted when constituents produce sharp increases. So step forward Avation, the fully listed aircraft leasing group that I inadvertently described as AIM-traded two weeks ago. It has lifted its dividend by 66 per cent to 1p a share and chairman Robert Chatfield says the company's directors "overwhelmingly recognise the importance of rewarding shareholders", a sentiment, I often feel, is not fully accepted in some boardrooms. The group's pre-tax profits jumped from £3,548,000 to £5,632,000 with the net figure up 120 per cent to £3,627,000. Earnings per share rose 87 per cent to 11.95p. The shares are about 107p against an 83.5p recruitment price.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments