A dividend checklist for income investors

Monday, Jul 29 2019 by
A dividend checklist for income investors

UK dividend payouts grew by 14.5 percent to a record £37.8 billion in the second quarter of this year. The figures were boosted by a handful of large special dividends and the effects of the weaker pound. But behind the scenes, underlying dividend growth of five percent was actually slightly weaker than some analysts thought it would be.

Part of the problem - according to the latest dividend data from Link Group - is down to pressure on corporate earnings. A slowing world economy and uncertainty on the domestic front are reasons why dividend growth is slowing across the board. That said, large-cap company dividends, which tend to benefit more from the uplift of weaker sterling, grew much faster than those from mid- and small-caps.

Some of the strongest payout growth was found in the financial sector, with banking dividends up by two-fifths, boosted by a special payout from RBS. During Q2, the bank made only its second payment in over a decade. But over past twelve months it has apparently paid out twice as much as it did in 2007 - the last year before banking stocks hit the buffers in the financial crash.

Looking ahead, the latest research predicts that UK shares are collectively set to yield 4.2 percent this year, which is weaker since the start of the year but still higher than historical norms.

So for investors looking for dividend income, which factors matter most when it comes to weighing up a dividend? Here we’ve pulled together and explored some of the most common dividend measures and looked at what you might find if you applied them as part of an equity income strategy...

1. High (but not excessive) dividend yield

Yield is perhaps the ultimate dividend metric. It tells you the percentage of how much a company pays out in dividends each year relative to its share price, which makes it easy to compare stocks. High yields are obviously appealing, but caution is needed. When the market anticipates a dividend cut, the share price will fall, which actually pushes the yield higher - making it a so-called ‘dividend trap’. So it pays to be wary of excessive yields.

2. Dividend cover

Attractively high yields obviously turn heads - but it’s important to know that a dividend is affordable. Dividend cover is a go-to measure of a company's net income over…

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Micro Focus International PLC is a United Kingdom-based global infrastructure software company. The Company is focused on enabling organizations to run and digitally transform its business with solutions spanning four areas: Enterprise DevOps, Hybrid information management (IT) management, Predictive Analytics, and Security, Risk & Governance. Its software solutions provides tools to build, operate, secure and analyze the enterprise. Its offered products and solutions includes, analytics and Big Data, application delivery management, application modernization and connectivity, business continuity, collaboration, information management and governance, and IT operations management services. The Company also offers Micro Focus software as a service (SaaS) and Micro Focus government solutions. more »

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7 Comments on this Article show/hide all

john652 26th Jul 1 of 7

Hi, If i click on the screen link it takes me here

Come back Soon!

Share this link with friends and  
receive subscription discounts...

Then logs me out

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Jack Brumby 29th Jul 2 of 7

In reply to post #497856

Should be working now, John - let me know if not.

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Dipla10 29th Jul 3 of 7


I've tried clicking on the link to get to screen, but just crashes my browser (using Chrome)

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sharw 29th Jul 4 of 7

Ben - you should add "Check Stocko Figures" to you screening list!

The first 2 look wrong - DPS Gwth % Forecast 1y:
MicroFocus 64.4
Taylor Wimpey 190.2

Micro Focus changed its reporting period so its comparative was an 18 month period to 10/18, which Stocko can't cope with. Dividends of 151.26c were declared making 100.84c annualised and compared to 88.06c for the prior year and 116c forecast - an increase of a still respectable 15%.

Taylor Wimpey always talk about their dividends as a whole - both ordinary and special, the latter having been declared 6 years in a row. They have already said that they will pay 7.6p in ordinary dividends for 2019 plus a special dividend of 10.7p giving a total of 18.3p. Stocko makes this look spectacular by including special dividends in the forecast but excluding them from the historic.

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maloharvey 30th Jul 5 of 7

Have just joined!  Very pleased to see National Express is on your list for sustainable yield.  Am looking forward to learning a lot!

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bobsandy12 1st Aug 6 of 7

useful article but poor layout in that you have to keep flipping back up to remember what each figure is.

No mention of the need to look out for contextual change e. g for utilities which have offered high yield but been subject to PE reduction on account of potential Labour govt interventions 

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ambrosia 1st Aug 7 of 7

just noticed Royal Mail currently has a div yield of 12%,

its like investing in a tobacco company, yes the long term future isnt guaranteed but thats a pretty fat div to compensate you for the risk

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About Ben Hobson

Ben Hobson

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