Share solace. Not all dividends have gone to the dogs

Investors seeking a steady income amid the market carnage still have places to go, says Kate Hughes

Shares have been nosediving for what seems an eternity, but until recently a steady stream of income from dividends has offered solace for some investors, especially those who have suffered from the plunge in savings rates.

But faced with plummeting profits, more and more companies, are cutting down or even cutting out their dividends. And that means difficult decisions for those who rely on this income.

Dividends, the investor's share of a company's profits, are liable for income tax but not national insurance. They are either paid as cash or can be reinvested in the business in return for additional shares up to a value of £1,500 – an attractive proposition now as share prices are low.

Investing for income means that you aim to earn dividends above the rate of inflation, rather than increasing the long-term capital value of your shares. Income investment is generally considered less risky than growth investment, with shareholders looking for strong, consistent performance from household names rather than companies that are aiming to expand rapidly and increase their share price.

But finding that dependability is becoming challenging, says Jonathan Jackson, head of equities for stockbroker Killik & Co. "Interest rates are very low at the moment, and those who have previously enjoyed high returns from cash savings are being forced to look for more risky investments for inflation-beating yields, either from government and corporate bonds or from equities" he says. "Traditionally, dividends from companies like BT and the banks have provided good sources of this income, but BT is now cutting its dividends and many of the banks aren't allowed to issue them because of the government bailouts."

But he suggests that those who have watched their dividend payments plummet, or who are desperately seeking decent returns, can still find good sources. "Companies like BP, Shell, GlaxoSmithKline and Vodafone are returning between 6.5 and 9 per cent at the moment," Mr Jackson notes. "For this kind of yield, look for strong, stable companies, possibly with overseas earnings to take advantage of the weak pound. And by investing long term, you minimise the effect of falling share prices as they should recover over time."

For those seeking a steady income, equity income funds pool investors' money and put it in a broad range of companies in a bid to diversify and improve the chances of receiving that stable income.

The equity income sector has been hit hard by the global economic downturn and has in fact performed worse than the FTSE All Share index over the past year. But Oliver Russ, of Ignis Asset Management, believes that broadening investors' horizons could help offset this. "UK equity income is a small sector, dominated by the banks," he says. "But in Europe it's a different story. It is a much bigger investment market, banks represent a much smaller proportion and it includes a broader spectrum of industries, like Norwegian oil.

"Generating income in euros rather than sterling should also benefit UK investors as the euro is likely to remain relatively strong for the foreseeable future," adds Mr Russ.

In fact, he believes the strength of the euro against the pound may increase through 2009 in light of the UK Government's plans for quantitative easing, or printing money.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
  • Get to the point
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

    Recruitment Genius: Operations Manager

    £30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

    Guru Careers: Stockbroker

    £Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Day In a Page

    Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

    The acceptable face of the Emirates

    Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk
    Nepal earthquake: One man's desperate escape from Everest base camp after the disaster

    Escape from Everest base camp

    Nick Talbot was sitting in his tent when the tsunami of snow and rock hit. He was lucky to live, unlike his climbing partner just feet away...
    Adopting high fibre diet could dramatically cut risk of bowel cancer, says study

    What happened when 20 Americans swapped diets with 20 Africans?

    Innovative study in the US produces remarkable results
    Blake Lively and 'The Age of Adaline': Gossip Girl comes
of age

    Gossip girl comes of age

    Blake Lively is best known for playing an affluent teenager. Her role as a woman who is trapped forever at 29 is a greater challenge
    Goat cuisine: Kid meat is coming to Ocado

    Goat cuisine

    It's loved by chefs, ethical, low in fat and delicious. So, will kid meat give lamb a run for its money?
    14 best coat hooks

    Hang on: 14 best coat hooks

    Set the tone for the rest of your house with a stylish and functional coat rack in the hallway
    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?