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; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Finance Assistant - Part time - 9 month FTC

    £20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

    Marketing Manager

    £40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

    Market Risk Manager - Investment Banking - Mandarin Speaker

    £45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Day In a Page

    Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

    A Syrian general speaks

    A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
    ‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

    ‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

    Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
    Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

    Fall of the Berlin Wall

    History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
    How to turn your mobile phone into easy money

    Turn your mobile phone into easy money

    There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
    Independent writers remember their Saturday jobs:

    Independent writers remember their Saturday jobs

    "I have never regarded anything I have done in "the media" as a proper job"
    Lyricist Richard Thomas shares his 11-step recipe for creating a hit West End musical

    11-step recipe for creating a West End hit

    Richard Thomas, the lyricist behind the Jerry Springer and Anna Nicole Smith operas, explains how Bob Dylan, 'Breaking Bad' and even Noam Chomsky inspired his songbook for the new musical 'Made in Dagenham'
    Tonke Dragt's The Letter for the King has finally been translated into English ... 50 years on

    Buried treasure: The Letter for the King

    The coming-of-age tale about a boy and his mission to save a mythical kingdom has sold a million copies since it was written by an eccentric Dutchwoman in 1962. Yet until last year, no one had read it in English
    Can instilling a sense of entrepreneurship in pupils have a positive effect on their learning?

    The school that means business

    Richard Garner heads to Lancashire, where developing the 'dragons' of the future is also helping one community academy to achieve its educational goals
    10 best tablets

    The world in your pocket: 10 best tablets

    They’re thin, they’re light, you can use them for work on the move or keeping entertained
    Lutz Pfannenstiel: The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents

    Lutz Pfannenstiel interview

    The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents
    Pete Jenson: Popular Jürgen Klopp can reignite Borussia Dortmund’s season with visit to Bayern Munich

    Pete Jenson's a Different League

    Popular Klopp can reignite Dortmund’s season with visit to Bayern
    John Cantlie video proves that Isis expects victory in Kobani

    Cantlie video proves that Isis expects victory in Kobani

    The use of the British hostage demonstrates once again the militants' skill and originality in conducting a propaganda war, says Patrick Cockburn
    The killer instinct: The man who helps students spot potential murderers

    The killer instinct

    Phil Chalmers travels the US warning students how to spot possible future murderers, but can his contentious methods really stop the bloodshed?
    Clothing the gap: A new exhibition celebrates women who stood apart from the fashion herd

    Clothing the gap

    A new exhibition celebrates women who stood apart from the fashion herd
    Fall of the Berlin Wall: Goodbye to all that - the lost world beyond the Iron Curtain

    The Fall of the Berlin Wall

    Goodbye to all that - the lost world beyond the Iron Curtain