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A good time to invest? Rising dividends and more share buybacks on the cards

UK investors are predicted to see rising returns this year on the back of higher dividends and share buy back schemes, it is claimed.

At the same time, the share prices of companies listed on UK markets are trading at a discount compared to others around the world, particularly the USA.

That suggests there is room for increases and potential windfalls as UK businesses are snapped up by firms overseas at a premium price.

Headline dividends are forecast to rise by some 3.7 percent this year to £94billion, although that would still be below the £100bn figure seen before the pandemic.

The real boost to income during 2023 came through corporate share buy backs with 40 percent of FTSE 100 companies taking this path, and more are expected this year.

The figures come from investment experts at Hargreaves Lansdown against the background of evidence that many private individuals have been withdrawing cash from investments in recent years rather than adding to them due to the cost of living squeeze.

Recent figures published by the Investment Association revealed that Britons took £51billion out of their investment nest eggs in the past two years.

It said the figure rose to £108billion after withdrawals by large institutions were added to the equation.

Looking ahead, Hargreaves Lansdown said: “A dominant theme from our meetings with UK fund managers has been around the material boost that share buybacks are giving to the total shareholder yield.

“This total shareholder yield takes account of both the dividend a company pays out, but also the shares it buys back.

“The UK market currently offers the highest total shareholder yield globally at 6.1 percent and through 2023.”

It added: “Dividends have been a key to the UK investment case for a long time. It’s a market that’s home to a lot of world-class companies, big and small, selling their goods and services around the globe with many boasting impressive records of growing dividends over the long term.

“Share buy backs have been dominating the news flow, but they aren’t necessarily coming at the expense of dividends.

“Headline market dividends are forecast to rise 3.7 percent in 2024 to £94billion, though this is still lower than the £100bn figure pre-Covid.

“The combination of attractive dividends, material share buy backs and the discount the UK market continues to offer makes it an attractive time to invest.”

Joseph Hill, senior investment analyst at the company, said: “The UK’s heritage as a leading income market is well established and over most of the last 10 years, the UK equity market yield has been significantly higher than the yield offered by gilts.

“However, gilt yields are now higher than they have been for a number of years, offering a more attractive return profile, assuming they are held to maturity.

“Income-seeking investors naturally want to achieve an income objective while not being too dependent on one part of a portfolio.

“The good news is they now have more options, as both the UK equity market and UK Government bond are offering yields of around 4 percent – and while rates are expected to fall later this year, UK equity income is on the up.”


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