UK Companies Hold Onto Top Spot In International Dividends Table

Brexit uncertainty may have subdued the valuations of the companies listed on the London Stock Exchange but it hasn’t stopped them from paying their investors the best dividends in the world. Despite a bad year for the London Stock Exchange over 2018, a trend that was reflected internationally as equity markets suffered a significant end-of-year correction, British companies still raised their dividend payments by an average of 5.1% on 2017.

The average FTSE 100 dividend sat at around 4.7%, the highest level since the international financial crisis of 2008/09. Across the FTSE All-Share, which incorporates every company listed on the main London Stock Exchange, the average dividend paid out was 4.1%. This year it’s expected to reach around 5%. According to the Barclays 2018 equity gilt study, we have to go as far back as 1991 to see comparable dividend levels. 

The current strength of the dividend yields from London-listed stocks are a result of depressed valuations resulting from the Brexit sell-off, which has seen international investors shun them. UK equities were ranked by several studies as among the least popular investment classes last year among international institutional investors.

However, for those investing online now, there is a strong argument that the dividend yields available at current valuations offer very attractive value. They also suggest plenty of potential medium to long term upside for London-listed equities once the clouds of Brexit uncertainty finally blow over. And in the meanwhile, investors can benefit from attractive dividend returns.

Laith Khalaf, the senior analysts at Hargreaves Landsdown, the UK’s biggest online investment platform by market share, believes that investing in London-listed equities represents an attractive opportunity for investors with longer time horizons:

“It may seem hard to envisage right now but Brexit volatility will pass and those who take a long-term view could pick up some attractively valued shares that offer a sizeable income stream.”

That’s a position backed up Stephen Bailey, manager of the Liontrust Macro Equity Income fund who has gone on record as opining:

“I have never seen the UK offering so much value. There are 33 FTSE 100 companies currently yielding more than 5% — that’s twice the average number of stocks that have delivered that level of income over the past decade. It’s as though the January sales have reached the stock market.”

However, as always, analysts don’t all hold exactly the same opinion. With Brexit risk and the wider global economic slowdown meaning a recession hitting at some point over the next couple of years can’t be discounted. Link Market Services chief executive Justin Cooper believes that could mean falling revenues for companies, leading them into a cut to dividends. High dividends can be a tool used by companies whose share price is suffering. Having to incentivise investors to hold onto shares by hiking dividends can sometimes indicate trouble ahead.

While it is impossible to discount that possibility, the fact remains that even if there is the potential for further downside ahead, current valuations and dividend levels should mean investors with the time to ride that out should do well in the long run on the basis of current share prices.