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No More Cut Dividends?
Dividend declarations over the last year indicate that we may now be on a period of steady dividend growth, outperforming inflation to give a real growth in income received.

The UK share market has been through a lengthy period when equity income from share dividends has been under severe pressure. The investment house CSFB (who publish studies going back to 1918) estimate that total income on equities is still at the level of the mid-1990s, having peaked in 1997, some 10% higher than currently.

In real terms, dividend payouts are where they were in the mid-1980s. Companies tended to pay too high dividends in the early 1990s. However, in the last few years, they have taken a more cautious view on cover. As a result, it is likely that declarations will be on a largely upward trend in the years ahead.

Bearing in mind that it takes 20 companies to increase their dividends by 5% to offset the effect of one company passing its dividends, it is not surprising that aggregate income has fallen. However, the accompanying table shows that the rise in the number of companies reducing, or passing dividends has been reversed significantly since 2001. This suggests that aggregate income is on the increase again and now represents a higher proportion of total investment returns from shares.

Table 1: Companies reducing their dividend

Year-end

2000

2001

2002

2003

2004 to date

No. companies cutting

20

30

26

20

8

Average Cut

60%

67%

53%

47%

40%

Companies Passing

4

9

8

4

1

- of which FTSE100

 

Int. Power

Railtrack

 

 

 

 

 

B.A.

 

 

The table shows, for the largest 350 companies (the FTSE350), the number of companies cutting their dividends for each financial year, the average cut, the number of those companies which passed their dividend, together with the names of those FTSE100 companies that passed an annual dividend.

‘…the number of companies reducing, or passing dividends has been reversed significantly since 2001…’

© Dividend Analysis, 2004