Monday, 23 April 2012

Rising dividends fuel real returns

(1) The current Asset Allocation for the FT APCIMS Balanced Portfolio Index is 67.5% equities, 20% UK Government Bonds, 7.5% Alternative Assets and 5% in Cash (2) Average income on the FT APCIMS Balanced Portfolio Index – the difference between the Total Return Index and the Income Taken Index being 3.77% over this period (3) As measure by the Retail Price Index
Evidence from Capita today suggests that UK dividends have increased to a record level over the last quarter, rising by 6.6% excluding special dividends.  This is all the more remarkable, given the collapse of dividends from the banking sector which, in December 2006 accounted for 18% of the FT All Share and the suspension of payments from BP following the oil spill in the gulf.  This highlights the robust health of the remaining large UK corporations and the role that they can play in long term income planning for private investors, particularly those who are planning to provide income in retirement from a portfolio of investments.

Indeed, our own research shows that an investment of £100,000 in March 1993 in a balanced portfolio (as measured by the FT APCIMS Balanced Portfolio Index (1)) and which had reinvested the income as it arose, would have seen the value of the portfolio rise to £379,606 by the end of March 2012. Moreover, an investor who had chosen to spend the income as it arose, would have seen their capital rise to £196,615 and, as importantly, the value of the income rise from £4,100 to £7,400(2).  This is over a period where inflation (3) has risen by 72.86%, the annualised equivalent of 2.92% and a period during which global equity markets have been the most challenging since the 1930s. 

This ability of a well balanced portfolio of investments to provide growth in both capital and income above inflation over the longer term should make it a key component of longer term savings for investors which, I would suggest, is vital at a time when increasing longevity and falling state provision makes an individual’s personal financial planning key to their long term financial wellbeing. 

Rob Burgeman
Divisional Director

No comments:

Post a Comment