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25-08-04 09:27
Dividend Growth at Fastest Rate in 7 Years

By JOHN ROWLING


Dividends on Britain's top companies, those that make up the FTSE 100 index, are rising at an average of 5 per cent. Dividends on Britain's top companies, those that make up the FTSE 100 index, are rising at an average of 5 per cent, the fastest rate in seven years. This is compared to just 1.8% last year and 1.3% in 2002 and comes in time to restore the faith of many investors who have seen little or negative growth in share prices.

According to Richard Hughes of M&G, a leading fund manager, "Companies have built up cas h reserves as profitability has improved. I expect dividend growth to continue well into 2005".

This year, 75% of FTSE 100 index companies have announced an increase in dividends and one third of the companies have lifted dividends by 10% or more.

Having to pay regular dividends and keep them rising most years acts as a discipline on managers to drive the company forward and also to look after its finances. Sustainable dividends build the value of a company's shares far more than one-off distributions or buybacks, because the prospect of rising future dividend income is the key reason for buying shares rather than fixed-income bonds.

The bear market ended only when the yield on shares reached the yield on gilt-edged bonds. Steady rises in dividends are a vital ingredient for any new bull market.


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