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Is it Time to Cash in on Nearly £90bn in Corporate Dividends?

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The last decade has been rough for savers. Savings rates have been pegged at a near-zero level, which has made the market difficult for fixed income investors. It all goes back to the crash in 2008, and the decisions that central banks made to bail-out the financial system with astronomical amounts of new money. Now it looks like some big dividends could be coming, but is this the right time to invest?

What Caused the 2008 Financial Crisis

Read: The Great Recession: What Caused the 2008 Financial Crisis?

History lessons aside, the same cheap money that saved banks also helped massive corporations to grow. According to recent research commissioned by The Mail on Sunday, there will be almost £90 billion paid out in dividends by the 100 largest publicly listed companies in the UK this year. Dividend paying shares have been a great place to be since 2008.

With a big payday in the cards, investors could be wondering if this is the time to buy into an enormous corporate payday. While no doubt alluring, investors should be careful about chasing dividend in the share market. Unlike bonds, companies can change the amount they pay as a dividend at any time. There are also other factors that can make a dividend play in the share market lose its lustre.

A Look at the Valuations

The 100 largest publicly traded companies in the UK are more commonly known as the FTSE 100. Like many global indices the FTSE 100 has eclipsed the highs it set in the heady days of 2007, leading some to question if shares are overvalued. The past decade has seen a move towards more concentration of value in fewer companies. In the case of the FTSE 100, Royal Dutch Shell (RDSB) and BP (BP) now comprise more than 20% of the entire FTSE 100.

Unlike some of the major tech companies that have pushed valuations up on the US’s NASDAQ, RDSB is trading at less than 12 times its trailing earnings. Depending on how you want to compare it with prior equity prices, that isn’t anything close to being a bubble. The same thing is roughly true for the entire FTSE 100, which has been hovering around 13 times its trailing earnings all year.

In very plain language, this means that the market probably isn’t overvalued, which makes the 6% dividend that RDSB is currently offering all the more attractive. In fact, RDSB is only trading at a touch over 11 times trailing earnings. BP is also offering a similar dividend yield, though it is trading at more than 30 times earnings, which is more than double the level of the FTSE 100.

FTSE 100 Index

Read: What is the FTSE 100 Index? Complete Beginner’s Guide

Time to Buy for Dividends?

For investors that want to add some income to their portfolio, some of the larger names on the FTSE 100 could make sense. There are other sectors that are offering 5%+ dividends, and this list from MorningstarUK expands on other companies that could make sense for a yield-starved portfolio.

There are no guarantees that a company will continue to pay a dividend, and it is also important to decide why a company belongs in a portfolio. For younger investors, some of the companies that are paying healthy dividends today could make sense as a long-term investment. For others, buying shares before the dividend date could make sense, with a plan to sell them after they recover from the ex-dividend sell-off, or if a certain level is breached on the downside.

A Few Companies Worth Researching

Interest rates are probably going to stay low for at least another year or two. If yield is your goal, these companies could have a place in your portfolio. Dividend plays are rarely exciting, but they can help you pad your savings pot with some extra pounds. BT Group (BT.A), formerly British Telecom, is far from a share market darling.

BT shares have been on a multi-year decline, but they are offering a substantial dividend at the moment. With a forward p/e of just over 10, and a dividend yield of more then 6%, BT Group could make sense for long-term investors who want to see some direct returns on their money.

Rio Tinto (RIO) is another company that produces basic materials, and they are offering their shareholders a 6%+ dividend as well. Rio has a long history of creating value in both good and bad markets. Like most of the major diversified miners, it is currently trading at a lower valuation than the broad market. With a trailing p/e of around 8, and a solid dividend, Rio shares could be a good place to be over the next few years for income-minded investors.


Nicholas is an experienced Finance Journalist who has written for a number of prominent online publications. He grew up in Ann Arbor, Michigan with a father that would read him the Wall St. Journal along side of other bed-time fare. He has traveled extensively, and been lucky enough to study a changing global economy in person. Nicholas spent many years in the Southern Cone of South America, sometimes in the middle of the countryside where livestock starts its journey to all points of the globe. Today he is thoroughly bemused with the stance that Central Banks have taken in the wake of the 2008 meltdown. There is no telling what will come out of the global financial system next, but he is glad that he lives somewhere that gold can be bought and sold readily!