Monday 17 October 2011

Chopped! -13% of UK Dividend Payers Cut Their Dividends

Although at the DIY Income Investor we are keen on investing in high-yield dividend shares - as Level 6 of the Income Pyramid - this type of asset is not without its risks. The key danger is, of course that the company reduces or even stops paying a dividend, as this usually results in both a loss of income and a fall in the price of the share (meaning a capital loss, if you sell).

Well, in the second quarter of 2011 nearly 13% of dividend-payers on the London Stock Exchange did just that!

This figure come from the latest Dividend Monitor report from Capita Registrars (which was reported, with slightly different numbers, in Motley Fool).

Out of 247 companies paid a dividend in the second quarter 2011 (compared to 221 in the same period in the previous year), 32 cut or cancelled dividends. That's 13% or one in eight!

There is no additional information on the characteristics of 'dividend-stoppers' in the report but this figure highlights the need to apply adequate filters to any high-yield shares that you are thinking of buying (as we describe here).

But still some good news...

The rest of the news about UK dividends is good: total dividends paid are expected to be up by 17% (yes, 17%, partially due to the reinstatement of the BP dividend, which I continue to hold) in 2011 - that's a pretty good rate of growth. The bulk of dividends are paid out by FTSE 100 companies - 89.3%, with a further 9.1% coming from the FTSE 250. 

The FTSE 100 paid out 89.3% of the UK’s first half dividends, with a further 9.1% coming from the FTSE 250. The small-caps made up the rest. For the FTSE 100, the prospective yield for 2011 is 3.6%.

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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