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The final couple of years have been nice for dividend inventory buyers.
Annually, forecasts for FTSE 100 dividend payouts have been rising. Properly, I say rising, however the fee of progress is being pared again.
I’ve learn the newest Dividend Dashboard from funding companies agency AJ Bell (LSE: AJB). And I see dividend forecasts for 2024 and 2025 are £10.3bn decrease than a 12 months in the past. That’s an 11.5% drop.
Yield falling
The FTSE 100 yield has dipped to three.8% for 2024, and 4.1% for 2025.
Not way back, the Metropolis anticipated 2024 atypical dividends to smash via the report set in 2018. However the newest consensus of £79.7bn would fall 6.5% in need of the £85.2bn paid that 12 months.
Nonetheless, we is likely to be on for a brand new report in 2025… until forecasts are scaled again some extra within the subsequent 12 months.
Gloom?
Is that this unhealthy information for dividend buyers? Nope. I nonetheless suppose we’re in a golden age for dividend shares.
A part of the autumn appears to be right down to companies transferring to share buybacks as a strategy to return surplus money. In a time when share costs are traditionally low, I feel that’s good sense.
Russ Mould, funding director at AJ Bell, stated: “The worth of the buybacks introduced by 25 FTSE 100 members to this point in 2024 at present stands at £27bn, to maybe give the FTSE 100 a platform for a crack at 2022’s all-time excessive of £58.2bn, or least 2023’s provisional complete of £52bn.“
Buybacks added to atypical dividends counsel an general money yield of 5.3% from FTSE 100 shares.
Economic system
Whereas I’m nonetheless upbeat about UK dividend shares, I do see some motive for warning. A number of the downgrades shall be because of the economic system, for certain.
No one thought inflation would get so excessive. Or rates of interest could be hiked to this point, and stay there for therefore lengthy.
The decrease free spend from the UK inhabitants feeds via to lowered firm earnings, and fewer money out there for dividends.
Future
What does the broader future for UK shares appear to be? I anticipate quite a bit shall be pushed by market sentiment.
And what higher strategy to see the place that’s going than to take a peek on the outlook for an funding agency, AJ Bell itself?
Dealer forecasts counsel we should always see earnings per share (EPS) rising by 25% between 2023 and 2026. And that might be right down to rising revenues from the agency’s buying and selling companies.
We might see the dividend rise by 22% in the identical time, with the yield rising to over 4%. Hmmm, and the inventory worth appears to be like engaging… a P/E of 16, dropping to 14 by 2026, doesn’t take a look at all stretching.
Possibly I ought to think about including AJ Bell to my Shares and Shares ISA.
Bullish
Anyway, over the following 10 years, I feel FTSE 100 dividends might smash via that 2018 report… a number of occasions. However that’s only a guess, only for enjoyable.
We might nonetheless see ache within the brief time period, if dividend money ought to slip. And the pattern for forecasts is down, for now.
However UK dividend shares are nonetheless tops for me.