FTSE 100 dividend payments are set to slide this year and next, according to wealth platform AJ Bell, which sees little reason for London's blue-chip index to shake off its recent torpor.
“The UK’s leading index is no higher than twelve months ago or indeed six years ago, a picture that pales next to the growth and momentum driven US indices, such as the S&P 500 or the NASDAQ,” said Russ Mould, AJ Bell’s investment director.
Aggregate dividend forecasts for 2023 and 2024 are now around 10% lower than a year ago, he points out, though the rise in share buybacks is compensating for this.
Cash returns - ordinary dividends, special dividends and buybacks – are currently running at £137.2 billion, behind 2022’s £137.6 billion, and equal to an estimated cash yield on the FTSE 100 of 6.9% for 2023.
Dividends this year of £77.8 billion (up 3.8%) would mean a forecast dividend yield of 3.9% based on the current market cap of £2 trillion while a forecast £83.7 billion in 2024 would increase the yield to 4.2%.
“That compares to 4.5% for two-year gilts and 4.0% for ten-year gilts, which offer tax-free gains and come with less capital risk,” added Mould.
“Competition from gilts and even cash in the bank may be one reason why the FTSE 100 is failing to make any major progress,” he adds.
“Another worry is that the long-awaited recession may finally take hold in 2024, even as the Sunak-Hunt administration tries to provide some boost to the economy.
“Aggregate profit estimates for 2023 and 2024 keep drifting lower, even if the FTSE 100’s members earn more in total overseas than they do here in the UK.“