Dividend-focused ETFs: apply a screen to avoid getting burned

In the present low-interest rate environment, many income-seeking investors have been forced to take more risk by moving out of bonds into stocks. And this is no surprise, when you consider the extra yield they can earn by investing in the FTSE 100 index, currently 4.5%, compared with gilts (0.7%) or a diversified basket of sterling-denominated corporate bonds (2%).

The world’s top 10 dividend-paying companies

Companies around the world handed out a collective $513.8 billion in the second quarter of 2019, marking a new record, according to Janus Henderson’s Global Dividend Index.

While a slowing global economy was a drag on the overall growth of dividend payments, underlying growth still came in at a 4.6%. At the same time, several countries and regions still managed to produce record payments

But, who are the world’s biggest dividend-paying businesses?

Overseas shares that investors should learn to love

UK companies as a whole have been among the world’s most reliable and generous dividend payers historically. Russ Mould, investment director at AJ Bell, says: “Dividend payments date back to the mercantilist origins of the British Empire. At the time, ships and voyages were funded by the wealthy, who took their cut on the return of those vessels, once costs had been met and goods sold (assuming the ships returned).”

Record UK dividend payments, but there is a sting in the tail 

UK dividends reached a new all-time high in the second quarter, keeping payments on track to break the £100 billion barrier this year.

According to Link Group’s latest dividend monitor, UK dividends in the second quarter rose by 14.5% on a headline basis, coming in at £37.8 billion. This surpasses second quarter payouts in the second quarter of 2018 by £4.4 billion.

The long-term cost of failing to reinvest dividends

Investors who fail to reinvest their dividends could see their portfolio worth almost half as much over the long-term, according to data from Fidelity.

The analysis showed that investing £100 per month in the FTSE All Share index over the past 30 years and reinvesting all dividends would have produced a portfolio worth £130,140.

A fifth of all dividend paying shares are “traps”

Dividend payouts have recently been reaching reach new record highs. In 2018 global dividends rose to a record $1.37 trillion in headline terms, representing a 9.3% increase, according to the latest Janus Henderson Global Dividend Index.