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UK News Income far higher than you'll get from the bank...dividend payouts

02:55  17 january  2021
02:55  17 january  2021 Source:   dailymail.co.uk

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1. Total return - Dividend payouts are great, but what if you had the possibility to get even higher returns in a shorter period of time? 6. Although dividend payout increases have historically kept up with inflation, growth investments may put you further ahead of inflation than income focused

Building passive income with dividend stocks can be one of the best ways to build wealth, but today tell you the other side of passive income and why dividends may not be so great. First, let's start At any moment, companies can hugely decrease their dividend payout or even worse, completely get

a man standing on top of a snow covered mountain: MailOnline logo © Provided by This Is Money MailOnline logo

Searching for a decent income from your savings and investments has rarely been more challenging. In climbing terms, it is more akin to summiting the ferocious K2 mountain in midwinter (as some brave hearts have just thrillingly done – please get down safely) than indulging in a spot of fell walking in the Lakes (lockdown rules permitting, of course).

The income landscape is indeed bleak. Interest from most mainstream savings accounts is now so miserable it is more likely to be measured in pence rather than pounds.

So, put £5,000 in an instant access Isa ('issue 9') with the mutually owned Nationwide Building Society and you will be rewarded with 50p worth of annual interest for lending them your money.

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The current annualized dividend payout amount corresponds to a 6.01% dividend yield. Dividend payouts contributed most of the fund’s 7.4% total return She will step down from the partnership and become an advisory director in the new year, Chief Executive Officer David Solomon said in a memo

While dividend investing is a great way for investors to get a steady stream of return through income from their stock purchases, there are still. The dividend payout ratio is used to examine if a company's earnings can support the current dividend payment amount.

a man standing on top of a snow covered mountain: Scaling the heights: Searching for a decent income from your savings and investments is like summiting the ferocious K2 © Provided by This Is Money Scaling the heights: Searching for a decent income from your savings and investments is like summiting the ferocious K2

Hardly mutual, hardly worthwhile (interest of 0.01 per cent) and hardly putting customers first, although the big banks are equally parsimonious.

With interest rates more likely to go down rather than up in the near future – and don't rule out negative rates – it's no wonder that money under the mattress is looking more attractive to some than an account with a high street bank or building society.

Until recently, National Savings & Investments was the saver's friend with interest rates so favourable they caused the organisation's customer service to buckle under the weight of demand. But savage rate cuts late last year put paid to its 'good guy' image and triggered a stampede for the exit doors.

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Here's how dividends work, how they are paid, and some dividend stocks to consider for your own portfolio. And although companies sometimes reduce or even terminate their payouts , dividends more Below, we' ll get into the nitty-gritty details of how dividends work, how a company's board of

The dividend you're entitled to when you buy a stock the day before the ex- dividend date will be an ordinary dividend . This means the dividend will be taxed at your ordinary income tax rate, the same as your wages or salary. Thus, you ' ll net out a dividend payment that is less than the value of the

Talk about marching customers up the proverbial hill, only to march them swiftly back down again. Does Ian Ackerley, NS&I chief executive, think he is today's answer to the Duke of York? Personally, if I was the Chancellor of the Exchequer, I'd send him packing for the chaos he has caused at the helm of the Government's savings bank.

With ten-year Government bonds also yielding a paltry return of 0.35 per cent a year, it leaves precious few attractive income options available.

A BRIGHTER OUTLOOK FOR UK DIVIDENDS

Speak to some investment experts and they believe there is an answer for many income seekers. It lies in the growing dividends some companies – listed here in London – are expected to pay in the coming years as the world starts recovering from the very worst that Covid-19 has thrown at it.

Last year was an annus horribilis for UK dividends with scores of companies either suspending or cutting payouts in the wake of the pandemic and economic lockdown – some, such as the banks, required to do so by regulatory authorities.

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That said, I prefer the dividends coming that provide the passive income rather than the capital gains in the portfolio, but it is nice to have a nest egg in the stock They allow you to have the stocks I use to get monthly dividend payments. It is one of the best dividend stocks I know of, especially if you

In other words, just how much dividend income do you need to live comfortably during your golden How long you ' ll live. Unexpected medical expenses. The average household run by someone who is at least Simply Safe Dividends does its best to recommend high -quality dividend growth stocks, with

Although swathes of businesses are still in no position to reinstate their dividends, the overall picture is brighter than it was last spring.

Russ Mould is investment director at wealth manager AJ Bell. He believes investing in UK equities for income has been 'a pretty hair-raising experience' over the past year. Yet he detects light at the end of the tunnel. He says: 'The good news is that analysts expect the FTSE100 Index's total income payout to rebound this year by some £11billion – or 18 per cent – to £71billion.'

At current market levels, he calculates this would support an annual dividend for FTSE100 companies equivalent to 3.6 per cent.

Mould adds: 'This would beat cash and Government bonds hands down and more than cover the current rate of inflation which is trickling along at 0.3 per cent.'


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Yet, there are risks. Share prices can go down as well as up which means investors are putting their capital at risk in exchange for this promise of a more attractive income. Also, there is no guarantee that the forecast jump in dividends will materialise. As Mould says: 'If the coronavirus vaccines have unforeseen side effects, the roll-out goes more slowly than planned, or the UK goes into double-dip recession, then 3.6 per cent may be off the table.'

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Michel Perera, chief investment officer of Canaccord Genuity Wealth Management, also predicts a 'brighter' outlook for UK dividends this year although like Mould he says investors need to be aware of the risks.

He says: 'Investors should be careful about the sectors and stocks they invest in. Also, the value of shares fluctuates, often significantly, and any dividend stream is not guaranteed.

'But with interest rates not increasing any time soon, investing some savings in equities is probably a good idea to generate income.'

WHICH STOCKS OFFER BEST INCOME HOPES?

Fund manager James Mee works for investment house Waverton and runs its £106million MultiAsset Income Fund. He says investors should look for companies capable of generating growing cash from their operations – cash that can then be used to pay shareholders dividends. 'Consistency and sustainability' of dividends, he says, is preferable to 'income-maximisation'.

He also believes investors need to think beyond the UK and look to Europe and the United States. Among his favourite dividend friendly stocks is retailer Tesco that is expected to pay an attractive 'special' dividend – around 51p a share – in the first half of this year on completion of the sale of its Asian business to Thai retailer CP Group.

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In the US, he likes financial derivatives specialist CME Group and in Europe Deutsche Post, the world's largest courier company.

He adds: 'By looking overseas, investors are likely to receive a lower dividend yield on their equity investments when compared to UK companies. But last year was a lesson in the importance of diversifying one's income risk, and on focusing on quality rather than quantity of income.'

The respective dividend yields on Tesco, CME Group and Deutsche Post are 4.8 per cent, 3.1 per cent and 3 per cent. Carl Stick, manager of investment fund Rathbone Income, sees 'tremendous value' in the UK stock market provided Covid-19 is defeated, paving the way for a recovery in the economy.

He particularly likes stocks that should benefit from an upturn in the economy – the likes of commodity giants Rio Tinto and BHP whose shares yield in excess of four per cent. He also believes the future now looks rosier for the oil sector. Despite high profile dividend cuts last year by Shell and BP, he says future dividends now look 'both attractive and sustainable'.

Both companies, he insists, will be 'an integral part of the green energy solution'.

Rathbone Income's biggest holding is Legal & General. With its shares yielding an eye-watering six per cent, Stick says the business has a rock-solid balance sheet, and is 'core to the financing of the nation's infrastructure'.

Ian Williams runs the Charteris Premium Income investment fund which only invests in FTSE100 companies. Like Stick, his fund is invested in a mix of mining stocks and insurance companies. Among the fund's 25 holdings are Rio Tinto, BHP and insurers Prudential and Legal & General.

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He says that as the world shifts towards non-carbon fuels, demand for the metals that Rio Tinto and BHP mine – such as copper and nickel – will rise substantially, increasing prices and the cash the two businesses generate. This will result in both 'higher share prices and higher dividends'.

AJ Bell's Russ Mould also believes mining stocks are a good dividend source for investors. He likes FTSE100-listed Anglo American, stating that if there is a bout of rising commodity prices, the company's profits would 'motor, dragging up the dividend for good measure'.

Other dividend friendly stocks that he likes include tobacco giant Imperial Brands – 'could generate plenty of cash and pay dividends for a good while yet' – utility giant SSE ('on track to increase last year's 80p-a-share dividend in line with inflation') and Unilever.

Like Waverton's Mee, he is also a fan of Tesco because of the forthcoming special dividend and sticking 'to the basics of keeping the nation fed and watered'.

Finally, Richard Hunter, head of markets at wealth manager Interactive Investor, says the country's biggest banks – a rich source of dividends in the past – could start paying dividends soon.

He says: 'It was clear from the recent third quarter reporting season that the banks were adequately capitalised and capable of returning to dividend payments.

'Indeed, most of the banks expressed a desire to be allowed to announce dividends at their full-year results. It remains to be seen whether the banks will return to such payments with all guns blazing, depending on the economic situation. But when Barclays kicks off the full-year reporting season on February 18, the picture will begin to become clearer.'

THE EXPERTS' INCOME FRIENDLY OPTIONS

The Mail on Sunday asked a panel of investment experts to come up with their top income friendly investment trusts and investment funds. Here are their top picks.

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City of London

Ryan Hughes, head of active portfolios at AJ Bell, says: 'This trust has a track record of increasing its dividends every year for over 50 years and the board has committed to this continuing, making use of the income reserves built up over the past. Even after the recent market rally, it is yielding around 5 per cent with holdings in high quality UK equities such as Unilever, Glaxo and Reckitt Benckiser. With annual fees at just 0.36 per cent, this is a good option for investors either wanting to take an income or who want exposure to UK equities and reinvest the income to generate future growth.'

Law Debenture

Justin Oliver, deputy chief investment officer at Canaccord Genuity Wealth Management, says: 'Law Debenture, managed by investment house Janus Henderson, aims to deliver shareholders long-term capital growth and a steadily increasing income stream. Its portfolio combines traditional investments as well as a private asset in business Independent Professional Services that helps bolster the trust's dividends. It has 40 years of dividend growth behind it.'

Diverse Income

Dzmitry Lipski, head of fund research at Interactive Investor, says: 'The trust aims to provide investors with an attractive level of dividends as well as capital growth over the long term. Although its dividend payment slipped last year, it is different to most other UK equity income funds because of its bias towards medium-sized and small companies. Dividends are paid quarterly.'

JOHCM UK

Equity Income Brian Dennehy, managing director of FundExpert, says: 'Many dividend cuts were Covid-related. These dividends will flow back and if a fund is focused on the right sectors it could enjoy a 50 to 60 per cent increase in dividends in the next 12 to 24 months. JOHCM UK Equity Income is one of the funds best placed to take advantage of this rare opportunity.'

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Primary school teachers much more likely to be off sick with Covid .
Teacher absences due to a confirmed case of coronavirus were up to three times higher in secondary schools than those of pupils, according to research from the Education Policy Institute.Teacher absences due to a confirmed case of coronavirus were up to three times higher in secondary schools than those of pupils, according to research from the Education Policy Institute (EPI) think tank.

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