Investor income boosted by ‘special dividends’

UK dividends climbed to £34.9bn in Q3 2021, an 89% year-on-year rise, according to the latest UK Dividend Monitor5. Sizeable one-off special dividends were partially responsible for the increase, a trend expected to be evident in Q4 too; however, the underlying total in Q3, excluding specials, leapt up 52.6% to £27.7bn. In context, this large year-on-year rebound is set against a pandemic-hit Q3 2020, in which dividends halved.

Ian Stokes, Managing Director of Corporate Markets at Link, commented on the data, “The good news is that we have consistently seen companies deliver more in dividends than we thought likely at the beginning of the year… Companies were progressively less impacted by each lockdown and many of them took action to bolster their balance sheets during 2020… Dividend firepower is now much stronger as a result.”

In reference to the prevalence of special dividends, he continued, “The boom in special dividends reflects how some companies are making catch-up payments, some are capitalising on very strong demand, and others are seizing the moment to sell assets at a time of high prices and numerous cashrich potential buyers.”

Although this is good news for income investors, dividend growth may be driven by sectors which might not do as well in the future, which is why it’s important to diversify across different sectors.

5Link Group, 2021

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The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

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Leave the relief

Recent data analysis4 has highlighted that over 1.5 million of the UK’s highest earners failed to claim an estimated £810m in tax relief in the 2018/19 tax year, totalling around £2.5bn between 2016/17 and 2018/19. Higher rate taxpayers benefit from 40% tax relief, yet eight in ten didn’t use their Self- Assessment tax return to claim it; similarly, over half (53%) of additional rate taxpayers failed to claim the 45% tax relief for which they are eligible.