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The final couple of years have been nice for dividend inventory traders.
Every year, forecasts for FTSE 100 dividend payouts have been rising. Nicely, I say rising, however the price of progress is being pared again.
I’ve learn the newest Dividend Dashboard from funding companies agency AJ Bell (LSE: AJB). And I see dividend forecasts for 2024 and 2025 are £10.3bn decrease than a yr in the past. That’s an 11.5% drop.
Yield falling
The FTSE 100 yield has dipped to three.8% for 2024, and 4.1% for 2025.
Not way back, the Metropolis anticipated 2024 odd dividends to smash by means of the document set in 2018. However the newest consensus of £79.7bn would fall 6.5% wanting the £85.2bn paid that yr.
Nonetheless, we could be on for a brand new document in 2025… except forecasts are scaled again some extra within the subsequent 12 months.
Gloom?
Is that this unhealthy information for dividend traders? Nope. I nonetheless suppose we’re in a golden age for dividend shares.
A part of the autumn appears to be all the way down to companies shifting to share buybacks as a approach to return surplus money. In a time when share costs are traditionally low, I feel that’s good sense.
Russ Mould, funding director at AJ Bell, stated: “The worth of the buybacks introduced by 25 FTSE 100 members thus far in 2024 at the moment stands at £27bn, to maybe give the FTSE 100 a platform for a crack at 2022’s all-time excessive of £58.2bn, or least 2023’s provisional complete of £52bn.“
Buybacks added to odd dividends recommend an general money yield of 5.3% from FTSE 100 shares.
Financial system
Whereas I’m nonetheless upbeat about UK dividend shares, I do see some motive for warning. Among the downgrades might be because of the economic system, for positive.
No person thought inflation would get so excessive. Or rates of interest could be hiked thus far, and stay there for thus lengthy.
The decrease free spend from the UK inhabitants feeds by means of to decreased firm income, and fewer money obtainable for dividends.
Future
What does the broader future for UK shares appear to be? I count on so much might be pushed by market sentiment.
And what higher approach to see the place that’s going than to take a peek on the outlook for an funding agency, AJ Bell itself?
Dealer forecasts recommend we must always see earnings per share (EPS) rising by 25% between 2023 and 2026. And that might be all the way down to rising revenues from the agency’s buying and selling companies.
We may see the dividend rise by 22% in the identical time, with the yield rising to over 4%. Hmmm, and the inventory worth appears to be like enticing… a P/E of 16, dropping to 14 by 2026, doesn’t have a look at all stretching.
Perhaps I ought to take into account including AJ Bell to my Shares and Shares ISA.
Bullish
Anyway, over the following 10 years, I feel FTSE 100 dividends may smash by means of that 2018 document… a number of occasions. However that’s only a guess, only for enjoyable.
We may nonetheless see ache within the quick time period, if dividend money ought to slip. And the pattern for forecasts is down, for now.
However UK dividend shares are nonetheless tops for me.
