2018 was not a good year for UK companies. The stock market suffered its worst year in a decade, falling 12.62% over the calendar year. However, while the collective worth of British companies fell, their earnings held up better.
This is good news for investors as it means the dividends these companies pay are on more solid ground. And UK dividends are actually thriving: the dividend yield of the UK stock market stands at an average of 4.8%, with a number of our largest companies paying well in excess of this. Importantly, nine out of 10 sectors saw dividends rise in 2018, so there is plenty of choice for investors.
Even the banking sector – which was hit hard after the financial crisis – is in better shape: The Royal Bank of Scotland recently paid its first dividend in 10 years and Standard Chartered paid its first dividend since 2015. Lloyds is distributing more than it did before 2008. Moreover, the dividend cover (a measure of a company’s ability to pay dividends in the future) of the UK stock market also looks healthy for large, medium and small businesses.
The strength of UK dividends is important not only for investors seeking an income, but also for those looking for healthy total returns. For example, while the UK stock market fell more than 12% last year, if dividends paid by UK companies had been reinvested, the fall was a slightly more palatable 8.82%.