The UK remains one of the strongest equity income paying markets in the world. It hosts a suite of multi-national corporations with long records of paying steady and rising dividends. More and more these strategies are being rewarded by investors, in part because of the thirst for yield amid record low bond yields and interest rates, but also because of its tendency to signal quality to investors: strong cash-flow, robust balance sheets and good corporate governance. If management is not spending money on important projects they are returning cash to shareholders, signalling to the market their continuing confidence in the business’ success that will in-turn bring fresh revenues for further projects. It can be true that companies awash with cash will eventually start to waste it.
But there’s a slight structural issue in the UK stock market: the top 20 companies pay 70% of all UK dividends; the top 10 pay 50%; the top five pay 35%.
