Forecasts for FTSE 100 dividends have been cut for this year but the index's total cash yield of dividends and share buybacks is still more than most bank accounts and bonds offer.
The total dividends paid out by companies on London's blue-chip index are forecast to reach £78.7 billion in 2023, according to analysis by investment platform AJ Bell.
This is down from the £83.8 billion consensus forecast at the end of June but still ahead of the £76.1 billion paid out in 2022, excluding special dividends.
Analysts currently forecast the FTSE 100 will beat its previous record, the £85.2 billion paid out in 2018, not next year but in 2025.
Based on ordinary dividends, the index's dividend yield is 3.9% for 2023, which compares badly with a Bank of England base rate of 5.25% and the 6%-plus offered by some savings accounts and bonds.
However, adding in the £46.6 billion in buybacks that Footsie companies have already announced, means 2023 is on track to be the second-best year ever for cash returns from the FTSE 100, AJ Bell said, coming in only behind last year's figure.
With 37 of the companies having already announced plans for a buyback so far, the total could still near the record high of £58.2 billion seen last year.
Adding these to dividends means the FTSE 100 is on track to return £129 billion to investors via ordinary dividends, special dividends and buybacks in 2023, with the possibility of more buybacks in the final quarter that could bring the total closer to 2022’s all-time peak of £137.6 billion.
With markets expecting the Bank of England base rate to peak at 5.50%, with the first cut expected in the second half of 2024, but two-year UK government bond yielding 4.87% and 10-year gilts at 4.47%, "investors look to cash or sovereign bonds as a potential source of yield once more", said AJ Bell's investment director Russ Mould.
The total cash yield from the FTSE 100, encompassing all dividends and buybacks, is now 6.2%, he said, "which nicely exceeds both the two- and ten-year gilt yields and even gives the prevailing rate of consumer price inflation of 6.7% a run for its money, at the time of writing."
However, the unimpressive performance of the index over the past two years may reflect an "understandable degree of scepticism", said Mould, regarding earnings and dividend forecasts for the index's constituents for 2023 and 2024, given ongoing inflationary and input cost concerns, higher interest bills, tax increases and the murky economic outlook.
This, he noted, has also resulted in analysts cutting forecasts for pre-tax profits over the past quarter, with the FTSE 100's profits now estimated to rise by 10% in 2023, down from the 19% prediction at the halfway point of the year.
This was mainly due to reduced profit forecasts for the mining sector as demand from China is seen waning.