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Equity Income Update: Dividend Growth in the UK
January 31, 2015
Generating an after-tax return in today’s low-yield environment is incredibly difficult. Given we know that dividends make up the bulk of long-term equity returns, that compounding those previous dividends plays a huge part in generating returns, and that dividend payments are only sustained by companies that are economically able to sustain them, it is perhaps more important to avoid companies that might cut payments rather than owning stocks with a lower but progressive yield. Total returns should be the bottom line for any investment strategy as, at the end of the day, an investor needs both. We therefore decompose total returns into dividend components (real dividend growth and inflation) and capital return components (valuation change) for companies in the UK over the last 10 years.