Societe Generale said the UK market has been a ‘poor performer’ this year with the FT All Share having lost over 5% year to date. This has put it back to where it stood at the end of January 2013, which mean it is approaching three years of zero price returns, the bank’s analysts noted.
On the plus side, lacklustre price returns are less important when decent dividends are being paid and in this respect the FT All Share has done well, delivering ‘a respectable 12%’ over the same period, thanks to compounding dividend payments.
The Societe Generale team warned however that in its view the UK’s dividend stream is going to come under increasing pressure.
Despite the ‘apparently healthy’ 3.6% trailing yield, UK dividend cover is at its lowest since the early 1990s recession, they said.
Most worrying for equity income fund managers hoping to ‘meet and beat’ the market yield, the percentage of companies with a dividend yield above the market is also near historical lows, Societe Generale said.
In fact, only 24% of companies now have a dividend yield above the market. So not only is the payout ratio high, but the market’s high yield is increasingly concentrated in relatively few names.
