2014 dividend total boosted by Vodafone one-off

Investor sentiment wobbled during January amid concerns over the outlook for the global economic recovery. The FTSE 100 index fell 3.5% during the month and several of its constituents – including Royal Dutch Shell, Pearson and BG – issued profits warnings. The FTSE 250 index fared slightly better, falling 1.6% over January while the FTSE SmallCap Index rose 0.9%. The yield on the benchmark UK government bond fell by 0.32 percentage points to end January at 2.72%. In comparison, the UK equity market yielded 3.2% at the end of January, meaning there was no change from its yield of 3.2% at the end of December 2013. For income-seeking investors, equities remain the most attractive asset class, according to Capita Registrars’ Dividend Monitor, although, the gap between bond and equity yields has narrowed. Looking ahead, dividend growth is expected to slow down – while the total dividend payout for the year is forecast to rise by almost 27.7% compared with 2013, much of this rise is attributable to a massive one-off payout from Vodafone, without which dividend growth in 2014 is estimated to be around 6.3%. According to a study undertaken by Markit, dividends from European companies are tipped to rise by 5% after two flat years, while payouts from US companies are expected to increase by almost 9%. January saw retailer Next announce stronger-than-expected Christmas sales. The company increased its full-year profits forecast and announced a special dividend of 50p per share, commenting: “We already generate more cash than can be invested productively in the ongoing development of the business.” Next expects to generate a further £300m of surplus cash that will be returned to shareholders and aims to pay additional special dividends for as long as its share price remains above £58. Nevertheless, the company remained cautious about the outlook for the wider UK economy, citing the problem of “little or no growth in real earnings”, which is likely to hamper consumer spending over the next year. Over 2013 as a whole, equity funds experienced their highest net retail sales since 2000, according to the Investment Management Association. Mixed Investment 20-60% Shares was the best-selling fund grouping during the year, followed by Targeted Absolute Return. UK Equity Income and Global Equity Income were the third and fourth best-selling sectors during 2013, with Property ranked in fifth place.