This is a knockout time to be a dividend investor. UK-listed companies are throwing out dividends like boxing rivals Floyd Mayweather and Conor McGregor throw punches. Investors are rolling with it, having just enjoyed a record quarter for dividends, with plenty more to come. The sooner you climb into the ring, the sooner you can feel their awesome wealth-building power.
The latest dividend monitor from Capita Asset Services shows UK Plc paid out an all-time record of £33.3bn in underlying dividends in the second quarter of 2017, up a mighty 12.6% on a year ago. This sum was boosted by the weak pound, which thumped up the value of dividends paid in dollars and euros, but even stripping out the currency effect, dividends still rose by 7.8%, the fastest growth in two years.
This was thanks to a killer combination of robust underlying growth, high special dividends, and those large foreign exchange gains. On the back of this mighty quarter, Capita Asset Services has upgraded its 2017 forecast for headline dividends to a record £90.6bn, a rise of 7% year-on-year.
Too many investors underestimate the power of the dividend. On the income-rich FTSE 100, dividends will make up roughly three quarters of your total return over the longer run. Dividends are the regular quarterly or six-monthly payments that companies make as a reward for holding their stock, and they also bash out plenty of one-off special dividends as well. Companies have just paid out underlying dividends totalling £28.6bn in only three months, also a comfortable record, with special payouts on top.
Specials contributed £4.6bn of Q2's total, the second-highest quarterly payout on record. This was boosted by a £3.2bn payment from National Grid, following the sale of its 61% stake in its UK gas distribution business, and £357m from resurgent Lloyds Banking Group, paid on top of its £1.2bn regular dividend. In total, 20 UK companies paid specials, the second-highest in any quarter on record.
Dividend growth was particularly strong in the mining sector, where every company raised payouts, led by Glencore and Rio Tinto. The pace of growth may slow in the second half of 2017, but Capita is now predicting total payouts of £90.6bn, a rise of 7% and beating the all-time record set in 2014. Average yields are expected to be 3.7%, more than nine times the return on the average easy access savings account, which currently pays a meagre 0.4%.
Justin Cooper, chief executive of Shareholder solutions, part of Capita, said: "The gloves came off in the second quarter, as UK plc limbered up to deliver a knockout year in dividends. Shareholders can be thankful they had punchy special dividends and the weak pound in their corner, but improving profits have also played their part."
This may surprise some investors, who thought the UK economy was on the ropes, thanks to political and Brexit wrangles. The slowing economy could inflict damage, but for now, dividend-paying stocks are retaining their crown as champions of the investment world.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Rio Tinto. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.