Is there investment opportunities in the UK?

Investment managers have expressed confidence that shareholder payouts from major UK and US companies will increase in the year ahead.

According to S&P Capital IQ, the JOHCM UK Equity Income Fund has predicted that dividends will grow by around 5 per cent in 2013, M&G’s Charifund has estimated an uplift of between 5 per cent and 6 per cent, and the Standard Life UK Equity High Income Fund has plumped for between 6 per cent and 7 per cent.

Bob Shearer, co-manager of the BlackRock North American Income Trust, concurred about the outlook for the US. ‘We believe that dividends will continue to grow,’ he said. ‘We have seen a large commitment from management teams given the need for income in the US, an aging population, and lack of available yield elsewhere.’

Within the rosy overall picture, though, investors on both sides of the Atlantic have been advised to buy income stocks discerningly. There is always fixed rate savings for a long term investment.

‘Forecasts for dividend growth next year are complicated by the issue of special dividends,’ noted Daniel Vaughan, fund analyst at S&P Capital IQ. ‘A key stock in this debate is Vodafone (LON:VOD), whose dividend accounts for 10 per cent of the historical FTSE All-Share dividend yield. Much of the cash payment stems from a special dividend payment passed on from the Verizon (NYSE:VZ) business.’

Vodafone has targeted an annual dividend hike of 7 per cent for the year to March 2013, and researcher Digital Look has calculated that its dividend yield will be above 7 per cent for the next two years. However, this is dependent on Verizon, which distributed £2.9 billion to Vodafone in January and is set to pass on another £2.4 billion before the end of the year. 

In the US, Shearer commended the information technology sector but warned on the prospects for healthcare and financial firms. ‘While these sectors are important from a dividend perspective,’ he acknowledged, ‘structural headwinds and underlying regulatory pressures remain.’

One of the fund’s top holdings is IBM (NYSE:IBM), which presently yields a meagre 1.7 per cent but is scheduled to boost this by more than 6 per cent a year.