British companies are set to return around £125 billion to shareholders this year. Almost none of the coverage mentions it. Here is why.
I suspect that if I asked you what British shares had done for their owners this year, you would reach for the index. Up a bit, you might say. Up more than expected, given everything. There was a record high at the end of July that earned a paragraph or two in the papers before the conversation moved on.
That answer is not wrong. It is simply missing the larger number.
The number
Analysts expect the companies in the FTSE 100 to pay out around 88.8 billion pounds in ordinary dividends this year. That would be a record, finally beating the previous high set back in 2018. On top of that, index members have already declared something in the region of 36 billion pounds of share buybacks for the year.
Put the two together, and the total cash returned to shareholders comes to roughly 36 billion pounds, which is just under 5 per cent of the whole index’s market value.
That is money leaving companies and arriving with owners. Not a paper gain. Not a valuation. Cash.
Why nobody talks about it
Because it is boring, and because it arrives in instalments.
A record index level is a moment. It has a number, a date and a photograph of a trading floor. A dividend is an email from your platform telling you that 41 pounds has been credited to your account, which nobody screenshots, and nobody celebrates. Yet over any period long enough to matter, it is the second thing that has quietly done a startling share of the work.
I am as guilty as anybody here. For years I watched the price of what I owned and treated the payouts as loose change that turned up occasionally. Then I actually added up what that loose change had done once reinvested, over a stretch of years, and felt mildly foolish. It had outgrown several of my cleverer ideas without ever once asking for my attention.
The honest small print
I am not going to hand you the number without its caveats, because a yield quoted without its risks is marketing rather than information.
Dividends are not contractual. Companies cut them, at exactly the moment you most wanted the income. Buybacks are more discretionary still and can be shelved quietly in a difficult quarter. A high yield is sometimes the sign of a cheap, sturdy business and sometimes the sign that the market expects the payout to be reduced. The screen cannot tell you which one you are looking at.
There is also a comparison that the equity world does not enjoy making. The forward yield on the index sits at around 3.4 per cent, while the ten-year gilt has lately been paying more than that on the headline number. Government debt has been offering income seekers a higher advertised return with an entirely different risk profile; that gap matters when you are deciding where income ought to come from.
One point sits in favour of the shares. Analysts put earnings cover for this year’s forecast dividends at over 2 times, meaning profits are comfortably larger than the payouts they support. Cover that sits above two is traditionally the level at which people stop fretting. It is not a guarantee. It is a cushion.
Why this matters if you are starting out
Here is the reason I am writing this rather than another piece about the index level.
If you are early in all this and the subject still feels as though it belongs to other people, the story you have been told is that investing means picking the thing that goes up. That story is exciting, and it is largely why beginners lose money. The duller story is that a great many perfectly ordinary companies sell perfectly ordinary things, make a profit, and post a portion of it to whoever happens to own them, quarter after quarter, whether or not anybody is watching.
You do not have to be clever to receive that. You have to be present, and you have to stay. If the mechanics of actually owning a share still feel fuzzy, I set them out plainly in How to Invest in Stocks: A UK Beginner’s Guide.
None of this is a recommendation, and I am not telling you the index is cheap or dear. I am telling you that the biggest number in British equities this year is not the one on the front page. It is the one arriving in instalments, in emails nobody reads, while everybody watches the chart.
The Jacqueline Brand — knowledge builds confidence, confidence builds wealth. This is editorial commentary for inspiration, not financial or professional advice. Always do your own research. The Collection
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