Falling shares prices have grabbed the headlines regularly this year, but there is a flip side to the declines that receives less attention: rising dividend yields. At the time of writing, the average dividend yield on UK shares, as measured by the FTSE All-Share Index, was 4.3%.

This figure is a net return for basic rate taxpayers, so the after-tax income from shares today is more than the net income from a deposit paying base rate (5% gross). Usually the opposite is true – the income from shares is lower than from deposits because:

•  Shares offer scope for capital growth, which deposits do not; and

•  Over the long term dividends have risen in line with inflation, whereas deposit income generally moves up and down with bank base rates.

The current reversal is due to two factors:

•  Share price falls have driven up dividend yields;

•  A few companies – notably the banks – are likely to cut or even stop paying dividends in response financial conditions.

ACTION
If you want to invest for income, think about placing some of your money in share-based investments. Whereas this used to mean a sacrifice in immediate income, for now the opposite could be true.

For advice on equity income funds and a comparison with your other income options, please call us.

<< BACK

This news item is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as at July 2008. No action must be taken or refrained from based on its contents alone. Accordingly no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.

Burley Financial Services Ltd is a private limited company registered in England and Wales under company no. 121 7536.
Burley Financial Services Ltd is authorised and regulated by the Financial Services Authority.
We are entered on the FSA Register no 125891 at www.fsa.gov.uk/register