Dividend growth in the year ahead?

The Financial Times ran a story today looking at the outlook for UK dividend growth in the next year. It gave the optimistic view that we might see them hitting a 12% growth rate which should be of some comfort to investors looking at large capital losses resulting from the sharp falls in share prices. Although the FT-SE 100 index has recovered a little in recent days it has still been a tough time for equity-based investments. It reminds us that shares are "risk capital" for the holders (the investors) and that in bad times equity investors suffer. The level of dividends is important and in the last year we have seen an increasing number of technology-based companies starting to pay dividends. This includes Cisco, Microsoft and Oracle. There are a number of strong arguments in favour of these types of companies getting the "dividend habit". Firstly, it will encourage a whole new group of investors to buy their shares. These are the types of investors who are looking for a reliable flow of income from their investments. Secondly, the payment of dividends can be seen as a clear signal of confidence from the management of the business. They are saying the company is doing well and that things should remain on an upward path. Finally, the payment of dividends reminds these companies that the primary aim of a company should be to provide the best possible financial reward to their shareholders. This takes us back to the start of the blog. At a time when share prices are depressed it is good news to see dividend growth so strong!