UK dividends rise

UK dividends were £94.1bn in 2021, up 46.1 per cent on the first year of the pandemic, according to Link Group’s latest UK Dividend Monitor publication. Of these payouts, underlying dividends (excluding specials) were £77.2 bn - the highest since 2015. 

For 2022, Link Group expects growth of around 5 per cent in underlying dividends, but they anticipate fewer special payments this year, leading to lower total payouts. 

That distinction is important, as special dividends from windfall profits are not the basis for deciding a share should be held long-term for income. When it comes to sustained trends in underlying dividend growth, understandably the pandemic has taken a real toll on some of the reliable large cap income stocks investors used to set store by. 

For this reason, the Alpha Dividend Yield screen that we run using FTSE All Share companies is dominated by investment trusts. Many trusts went to great lengths to protect and even grow their dividends in the coronavirus downturn, which has helped them rank highly.

There is a delicate balance to be had as slashing a dividend on an income trust might reasonably be expected to see investors running for the door. However, not overly diminishing capital reserves (thus sacrificing future compounding power) is important, too. Still, as our screen results demonstrate, investment trusts were very much the income investor’s friend in the worst depths of the pandemic. 

Going forward, investors will be glad of rising dividends in a time of inflation, but keeping an eye on the growth in net asset value (NAV) is always  important, too.