Proactive Investors - UK shares are yielding less than bonds for the first time in fifteen years following the surge in interest rates in recent months, according to Computershare.
Even though UK payouts have been rising and share prices falling, other asset classes saw yields rise much more dramatically over the past quarter said the registrar in its latest dividend monitor.
Yields on equities rose from an average of 3.7% to 4.0% in the three months to June, but 10-year benchmark gilts yield jumped 1.2 percentage points to almost 4.7%.
Best-buy instant access savings accounts also now offer 4.4%, up from 3.6% in April.
Mark Cleland, Issuer Services chief at Computershare, commented: “With UK government bond yields back at levels last seen 15 years ago and cash savings rates inching up in tandem, this big shift in the income landscape means equities now yield less than cash savings or bonds.
“It is important to remember, however, that dividends tend to grow over time, whereas bond coupons and cash interest do not, helping to tip the scales back in favour of equities as a long‑term investment, although they come with higher risks attached.”
Regular UK dividend payouts have been rising thanks to bigger handouts from the banks, said Computershare, and this has raised projections for the year overall.
Fewer special dividends meant the second quarter 2023 total dropped by 9% to £32.8bn, but on an underlying basis there was a rise of 3.5% in regular payments to £32.8bn.
Banks were the driver, shelling out £7.8bn or up 61% on an underlying basis.
HSBC (LON:HSBA) is now on track to become the UK’s largest dividend payer this year for the first time since 2008, Computershare added.
Industrial goods and support services were also big payers, with 95% of manufacturing companies raising their payouts and those two sectors seeing a 12% hike overall.
Covid-hit groups are also bouncing back with dividends in the airlines, leisure and travel sectors up two-thirds. though they remain well below pre‑lockdown levels.
A drop of around a third in mining payouts was the main reason for the second-quarter dip, said the report.
For 2023 overall, Computershare predicts total payouts to fall 1.7% to £92.3bn (reflecting lower one-offs and exchange rates), but regular dividends are now expected to rise to £88.9bn, up 6.1% on an underlying basis and £2.7bn better than expected three months ago.
Cleland added: “UK companies collectively made record profits last year and have so far proved resilient in the face of interest rates.
“Among the three biggest-paying sectors banking and oil dividends are firing on all cylinders, compensating for much lower mining dividends, though even these remain high by historic standards.
“Banking profits are soaring as they benefit from higher interest rates, and dividends are following suit.”