Reviewing 12 months of Lipper data to July 2010 and again to July 2011, Burdett says that while significant falls in dividend yields were not entirely surprising, just how far yields have dropped was a revelation.
The data shows, he says, IMA UK Equity Income fell 33%, down to 3.9% from 5.8%.
“One has to ask why dividend yields have fallen in a sector which has seen nominal dividend payouts rise quite substantially,” said Burdett. “In our view the appreciation of share prices has overwhelmed the prospect of improving dividend payouts. However, one needs to be careful not to extrapolate too much, and looking ahead this sector has the potential to recover if dividend growth continues to remain in positive territory, as we expect it will.”
IMA Corporate Bond yield was down 19%, falling to 3.8% from 4.7%, and for the moment Burdett believes there is little prospect that these yields would improve.
“Should we have a situation where inflation returns at a time when rates are rising, new investors can benefit from an increase in yield within this sector. However, this will not be so beneficial for incumbent bond holders, as capital value will concurrently drop,” he said.
Also dipping were IMA Strategic Bond yield – down 30% to 3.7% from 5.3% – and IMA Property yields, falling 47% to 2.3% from 4.3%.
“Yield has always been and remains a highly popular and perennial requirement of investors,” he said. “However, the evidence shows it has become harder to get decent yields over the past two years despite the improving economy, stockmarket and bond market.”
