How much has your income increased over the last year?
The latest data from the Office for National Statistics (ONS) shows average weekly earnings rising at an annual rate of 3.6%, about 2% above the rate of inflation. Nevertheless, the ONS says that, taking a longer term view, once inflation is taken into account average earnings are still virtually unchanged from before the 2008/09 recession. Those stories of a lost decade are more than an urban myth…
Dividends are doing better…
Shortly after the ONS earnings data were published Link Asset Services, the company registrars, issued its latest quarterly Dividend Monitor. This showed that companies listed on the London Stock Exchange paid out a record total of £35.5bn in dividends in the third quarter of 2019, 6.9% higher than for the corresponding period in 2018. The strong growth was helped by bumper special dividends of £3.2bn.
A longer term view of dividends growth, starting before the recession, shows regular dividends (i.e. total dividends excluding special dividends) have outpaced earnings. As the graph shows, inflation-adjusted dividends are estimated to be 28% above their 2010 level by the end of this year, having recovered from the effects of the recession.
A message for income investors
That graph conveys an important message if you are investing for income: in the long term, dividends have more than kept pace with RPI inflation (which is generally higher than its CPI counterpart). There have been dips – witness 2007-2010 – but in the past these have always been recovered.
At present UK shares are offering an average dividend yield of around 4.2% which, to quote Link, means they “deliver far more income for every £1 invested than any other asset class”.
If you are looking for income, make sure you consider funds investing in UK shares. Not only is the immediate level of income available higher than from many other investments, there is the prospect that it will keep pace with inflation.
But remember, past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This blog is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice. No action must be taken or refrained from based on its contents alone. Accordingly no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction.
Professional advice is necessary for every case; we would love to hear from you..
Source: ONS, Barclays Capital, Technical Connection estimates for 2019 full year