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It’s some time since I’ve felt this bullish concerning 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 additional 7% rise pencilled in for 2025, to succeed in £83.9bn.
That wouldn’t fairly get us to 2018’s all-time file 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 go, 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 Programs, Tesco, Prudential… they’re all doing it. It’s not just some sectors, it’s throughout the board.
When such a various vary of companies wish to purchase their very own shares at at this time’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 largest 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 will be. However we’re inching nearer to the top of the yr, with no apparent issues thus far. 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 following few years appear like? Have we had cuts lately, and does future money look a bit weak?
These issues went incorrect for Vodafone, set to slash its 2025 dividend in half. For years, it simply wasn’t producing the money to present me any confidence in its large dividends. And that’s lastly come again to chunk.
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 instances. For this type of firm, which isn’t capital intensive, I believe that’s advantageous.
There’s been no dividend reduce previously decade, and I see no purpose to concern one within the subsequent few years.
There may be particular threat, as M&G is popping out of a troublesome patch when folks pulled again on their use of funding providers. We’re not out of these woods but. And inflation continues to be a fear, maintaining folks’s fingers 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 usually appears sturdy to me.
As a basic warning, the Dividend Dashboard factors out that we’ve had 137 dividend cuts from at this time’s FTSE 100 shares previously decade. Of these, 74 have been in 2019 and 2020 (and a few, just like the banks, rapidly got here again).
Dividend investing is rarely a no-risk technique. However proper now, I do suppose the potential reward-to-risk ratio from FTSE 100 dividends is likely to be the most effective I’ve seen for a while.
