Exploring the UK – the world’s leading income market
- The FTSE All Share yields an attractive 4.1%
- FTSE 100 companies contributed 88% of UK equity market dividends in the second quarter of 2022
- UK equity income funds can offer attractive dividend prospects to income seeking investors
Joseph Hill, Senior Investment Analyst, Hargreaves Lansdown:
“With high inflation surpassing savings rates on offer, UK equity income funds can offer attractive dividend prospects to income seeking investors. Dividends have long been a key element of the UK market, perhaps more so than any other. The FTSE All Share index, which is the broadest representation of the UK market, yields a healthy 4.11%. While this may not beat the current rate of inflation, over time investing in a dividend-paying company can mean your income and capital grows as the company grows.
Where do the dividends come from?
The bulk of UK equity market dividends, in fact 88% of them in the second quarter of 2022, were contributed by companies in the FTSE 100 index – the largest 100 companies listed in the UK. These companies are often mature, diverse and able to withstand economic challenges. Lots of these businesses also operate around the world, so they aren’t just reliant on the strength of the UK economy to thrive.
Around 70% of FTSE100 company revenues are generated overseas. FTSE100 companies are also expected to buy back £37bn worth of their own shares in 2022. The headwinds faced by UK markets have been well rehearsed in recent years. But fundamentally, companies only want to buy their own shares back when they think they’re undervalued by the market.
In recent months, mining and oil companies have benefited from the strength of commodity prices which have been exacerbated by the consequences of Russia’s invasion of Ukraine. While banks stand to benefit from rising interest rates in the UK. Most sectors though have seen a reasonable uptick in dividends as the economy gets back to normal following the pandemic.”
HL’s UK Equity Income Fund picks with the potential to generate a combination of income and growth over the long term:
- Artemis Income
Adrian Frost, Nick Shenton and Andy Marsh have a combined seven decades of investment experience and have developed a strong working partnership at Artemis. They invest in businesses they think can pay a stable and sustainable level of income, through the market cycle and regardless of the economic backdrop. We’re confident in the team’s ability to add value through stock selection over the long term. This more conventional UK equity income fund could work well alongside other asset classes in an income focused portfolio.
- Aviva Investors UK Listed Equity Income
Chris Murphy and James Balfour run a blended portfolio of companies with some able to offer a high yield now and others capable of strong dividend growth in the future. They look to invest in businesses that have a sustainable competitive advantage over their peers, which will enable them to continue to grow their dividends. Murphy has over three decades of investment experience and benefits from working in a collegiate investment team at Aviva.
- Jupiter Income
Vastly experienced manager Ben Whitmore does something quite different from most other equity income managers. He invests in fundamentally good companies that are undervalued and out of favour with the market but capable of recovery. This means there’s significant emphasis on balance sheet strength. The fund has a distinct value style bias and this contrarian approach means it can look quite different to the index.
- Troy Trojan Income
The fund focuses on high quality, resilient companies that can generate a sustainable and growing income over the longer term, rather than those paying a high income today. These businesses are often market leaders and dominant within their field. This more cautious approach could help to shield investors from the worst of market falls. We rate Troy’s experienced, well-resourced and collegiate investment team highly.
