Although this is the slowest rate of growth for three years, it is still expected to outpace inflation at about 2.1%.
The research highlighted that investors have already received a pleasant dividend surprise in the past few days, with Next’s impressive Christmas resulting in a £75m special payment worth 50p a share. Next's management has said the company will use special dividends for as long as its share price remained above £58, the limit it has set for share buybacks.
Alan Clifford, manager of the Lazard UK Income fund, said the UK equity income sector’s strong 2013, fuelled by a defensive rally in the first half of the year, means some stalwarts of income investing are now at relatively full valuations. He is now looking towards smaller companies for dividend growth.
“We continue to find plenty of financially productive companies with a sustainably high and/or growing dividend,” he added.
“Some of the best opportunities can be found in places which might not seem like obvious choices for an income fund, such as small caps and cyclicals. Mid and small-cap companies performed well last year, but there is still good value to be found and management are becoming increasingly aware of the importance of their dividend policy.”
A good example, said Clifford, is AIM-listed Alternative Networks, a business-to-business telecommunications reseller, whose management have clearly communicated their plans to grow the dividend over time.
“Among cyclicals, particularly miners, we are also seeing much greater discipline around capex and an increased focus on shareholder returns, and Rio Tinto is currently among our largest active positions,” he said.
Markit identified oil and gas as the sector in which investors will get the best dividend deal, with £12.8bn in dividends going to investors, of which around £4.4bn apiece will come from Shell and BP.
“BP has already said that it plans to sell assets worth £6bn and return the bulk of the cash to shareholders,” said Garry White, chief investment commentator at Charles Stanley.
“The announcement came alongside its third quarter results statement, at which it increased its dividend by 5.6%. The market now expects that Royal Dutch Shell will do the same.”
The banking sector is also expected to pay out about £9bn, said Markit, with Lloyds Banking Group expected to return to the dividend list after a five year hiatus.
