Investors in UK firms saw their dividend payments cut by £10bn last year, according to a communication. UK corporations paid out £56.9bn to investors in 2009, 15% less than in 2008, recounted Capita Registrars. Backers in the banking sector were the worst hit, asserted the report, after the industry cut payouts by £6bn from 2008 levels.
It envisioned dividends would grow this year but only by five percent, due to a slow industrial recovery. Dividends underpin the valuation of shares by market financiers and are necessary to the monetary well-being of many millions of people thru the investments held by their pension funds. Annuity schemes often invest in a large range of assets, some of which are bought basically in expectation of their worth going up – “capital growth” in the stock market’s language.
But dividends are important to generate the money flow important to fund allowances being paid now and in the future. Any long term downturn in the flow of dividends would increase the holes now being recorded by annuity schemes, as they’d be needed to put away an even larger stock of assets now to generate the money they require. Justin Urquhart-Stewart of 7 Investment Management expounded : “A 7% return on your investment every year approximately doubles your money over ten years. So cutting the dividend will at once reduce the fuel need to power your pension.”.
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