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It’s some time since I’ve felt this bullish in regards to the dividend forecast for the UK inventory market.
The most recent Dividend Dashboard, from AJ Bell, reveals an analyst consensus for a 1% rise in dividend money this yr. And there’s an extra 7% rise pencilled in for 2025, to achieve £83.9bn.
That wouldn’t fairly get us to 2018’s all-time document of £85.2bn. However we would miss by solely a whisker.
For the previous few years, analysts have began out with large hopes and pared them again a bit because the months cross, although. However even with that, I nonetheless share the optimism.
Buyback increase
A fast take a look at the primary couple of days of this week alone reveals dozens of FTSE 100 corporations engaged in share buybacks.
Barclays and HSBC Holdings, BP and Shell, BAE Techniques, Tesco, Prudential… they’re all doing it. It’s not just some sectors, it’s throughout the board.
When such a various vary of corporations wish to purchase their very own shares at at present’s costs, it makes me wish to take part.
And buybacks ought to increase future per-share dividends.
Dangerous large yields?
Let’s take a look at one of many greatest yields.
Financial savings and funding supervisor M&G (LSE: MNG) is forecast to pay a 9.7% dividend yield in 2024.
That’s not assured, as no dividend ever might be. However we’re inching nearer to the top of the yr, with no apparent issues to date. And that lifts my optimism.
With such an enormous yield, I’m often cautious. Will there be sufficient earnings to cowl it? What do the subsequent few years appear to be? Have we had cuts lately, and does future money look a bit weak?
These issues went fallacious for Vodafone, set to slash its 2025 dividend in half. For years, it simply wasn’t producing the money to provide me any confidence in its large dividends. And that’s lastly come again to chew.
Future outlook
I haven’t determined whether or not I’d purchase M&G. However forecast earnings look comfortably forward of dividends, with cowl of round 1.35 occasions. For this type of firm, which isn’t capital intensive, I believe that’s superb.
There’s been no dividend reduce previously decade, and I see no motive to worry one within the subsequent few years.
There may be particular threat, as M&G is popping out of a tricky patch when individuals pulled again on their use of funding companies. We’re not out of these woods but. And inflation remains to be a fear, holding individuals’s arms extra firmly of their pockets.
However throughout the FTSE 100, I’m seeing equally upbeat earnings expectations. Cowl is a bit skinny in some circumstances, but it surely typically seems to be robust to me.
As a common warning, the Dividend Dashboard factors out that we’ve had 137 dividend cuts from at present’s FTSE 100 shares previously decade. Of these, 74 had been in 2019 and 2020 (and a few, just like the banks, shortly got here again).
Dividend investing isn’t a no-risk technique. However proper now, I do assume the potential reward-to-risk ratio from FTSE 100 dividends may be the very best I’ve seen for a while.
