Investors in £1 trillion dividend windfall

Investors in UK companies have received a mind-boggling £1 trillion in dividend income since 2000, as British firms bow to the growing demand for income amid record-low interest rates and falling bond yields.

And with dividend growth tipped to accelerate, they may not have as long to wait for the next trillion, according to a new report.

Streaking ahead of consumer price inflation and GDP growth, dividends have risen 89 per cent since the turn of the millennium, with UK companies paying shareholders £325 million on average every single working day this year, data from Capita Asset Services reveals.

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It's taken just 16 years for UK companies to return £1 trillion to shareholders, but Capita is confident the momentum driving dividends higher is here to stay. They reckon it will take just 10 years for shareholders to earn another £1 trillion and make the £2 trillion milestone.

With little danger that UK interest rates will begin rising any time soon, and with bond yields falling, income seekers increasingly depend on equities to meet their needs.

And Justin Cooper, who runs Capita's shareholder solutions business, expects equity yields to remain the most attractive in the near future.

'[Dividends] are the most important component of returns from investing in shares over the long term,' says Cooper.

'This is plain to see when we consider that the FTSE All-Share index is only 14 per cent higher now than it was at the beginning of the century. But reinvesting all those dividends will have supercharged an investor's returns to well over 90 per cent.'

Estate agent and surveyor LSL Property Services' unchanged £4.2 million interim payout, worth 4p a share, rung the £1 trillion bell on Tuesday (6 September).

The first payer of the new century, Next's 7p interim dividend, kicked off a year that returned £42 billion to shareholders. By 2015, the UK's annual dividend payout had surged to £79.4 billion.

The sustainability of Next's dividend payments have been in some doubt as free cash flow comes under pressure.

The high street fashion chain's boss has already warned that 2016 could be the worst it's seen since the financial crisis as the group battles against increasing competition and as lower interest income from its directory business.

Next returned 46 per cent of its operating cash flow to shareholders last year as part of a £341 million special payout.

This article was written for our sister website Interactive Investor.

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