With the investment media so focused on share price moves and earnings forecasts, it's often all too easy to forget about dividends. They seemed to fall out of fashion with the rise of the technology industry, which spread the mantra that jumping on the tech escalator meant growth was all but assured. These have never really found their way back into favour, despite overwhelming evidence that, as Capita Registrars reminds us in its latest quarterly UK Dividend Monitor, "dividends matter".
Capita cites the Barclays Equity Gilt study to show the miraculous effects of compounded, reinvested dividends on investment returns – it shows that £100 invested in 1945 would be worth £92,460 with dividend reinvestment, against just £5,721 without. But that's just one of countless studies we could turn to, to provide the irrefutable proof of the wonders of reinvested dividends, as we've written many times before.
The UK has historically been the home of the dividend. "The distribution and payout ratio has always been reasonably high in the UK and it's been sacrosanct to try to maintain that. Boards in the City have spent many hours with wet towels around their heads when they've had to cut," says Guy Monson, chief investment officer at investment manager Sarasin. Three years ago, if you had to leave the UK and go into a global equity income market, you had to take a near-50 per cent cut, he says.
But the historically dividend-abstemious nature of foreign companies is changing. The UK slashed dividends at an extraordinary rate in 2009. Other regions did too, but at a much slower rate. UK cuts of a third dwarfed the 13 per cent of other European companies and 19 per cent seen across the world as a whole. And while UK dividends will to some degree bounce back in 2010 and 2011, cash-rich foreign companies look poised to grow their distributions faster, particularly those in the rest of Europe.
As Mr Monson argues: "Equity income is no longer just the preserve of the British."
