UK fund managers are seeing a “material boost” from bumper share buybacks, according to broker Hargreaves Lansdown, as investor returns rebound from a pandemic slump.
The firm said on Monday that “attractive dividends, material share buy backs and valuation support offered by the UK discount” meant it was a good time to invest in the UK stock market.
Hargreaves Lansdown noted that the UK market currently offers the world’s highest total shareholder yield at 6.1 per cent, with 40 per cent of FTSE 100 companies buying back their own shares last year.
However, this surge has not come at the expense of lower dividends, which have also rebounded from pandemic lows.
Hargreaves Lansdown noted that headline market dividends, including special payouts, are forecast to rise 3.7 per cent in 2024 to £94bn, although this figure is still lower than the £100bn of payouts from before Covid-19 hit.
The firm added that dividends have been “a key to the UK investment case for a long time”, with British companies “boasting impressive records of growing dividends over the long term”.
Joseph Hill, a senior investment analyst at Hargreaves Lansdown, said: “The UK’s heritage as a leading income market is well established, and over most of the last 10 years, the UK equity market yield has been significantly higher than the yield offered by gilts.
“However, gilt yields are now higher than they have been for a number of years, offering a more attractive return profile, assuming they are held to maturity. Income-seeking investors naturally want to achieve an income objective while not being too dependent on one part of a portfolio.
“The good news is they now have more options, as both the UK equity market and UK government bond are offering yields of around four per cent – and while rates are expected to fall later this year, UK equity income is on the up.”
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