UK equity income market review: UK equity yields surged over 2018

December 2018

UK equity markets continued their downward trend into December amid intensifying speculation over the possibility of a no-deal Brexit. Although the government managed to reach an agreement with the EU in November, concerns that the MPs would reject the deal prompted Prime Minister Theresa May to postpone a “meaningful vote” from 11 December until January. 

  • UK equity yields rose strongly over 2018
  • Investment companies outperformed the broader market between January and November
  • Technology hardware & equipment was the best-performing sector over 2018

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UK equity markets continued their downward trend into December amid intensifying speculation over the possibility of a no-deal Brexit. Although the government managed to reach an agreement with the EU in November, concerns that the MPs would reject the deal prompted Prime Minister Theresa May to postpone a “meaningful vote”  from 11 December until January. With only three months to go until 29 March 2019, Mrs May warned: “Avoiding no deal is only possible if we can reach an agreement or if we abandon Brexit entirely”.

“Only a handful of FTSE sectors ended the year in positive territory”

Over 2018 as a whole, the best-performing FTSE industry sectors were technology hardware and equipment – which rose by over 35% – followed by industrial metals & mining and pharmaceuticals & biotechnology, which both delivered double-digit returns. At the other end of the performance spectrum, the worst-performing industry sector over the year was tobacco, which fell by over 40%, followed by industrial transport, mobile telecoms, software & computer services, and general retailers, which all fell by over 25%. In fact, only a handful of FTSE sectors ended the year in positive territory; the vast majority made double-digit losses. 

Elsewhere, investment companies generally performed better than the broader UK market over the year to November, according to the Association of Investment Companies (AIC). The average investment company returned 1.3% over the first 11 months of the year, compared with losses of 2.6% for the average open-ended fund and 6% for the FTSE All Share Index. 19 new investment companies launched over the year, including ten equity investment companies that raised £2 billion.

UK equity yields rose strongly over 2018. The yield on the FTSE 100 Index climbed from 4.37% to 4.68%, having begun 2018 at 3.81%. Meanwhile, the FTSE 250 Index’s yield increased from 3.16% to 3.39%, after beginning the year at 2.64%. In comparison, the benchmark UK government bond yield rose from 1.23% to 1.26%, having started 2018 at 1.23%.

Global dividends are expected to deliver headline growth of 8.5% over 2018 as a whole, according to Janus Henderson’s most recent Global Dividend Index, while underlying growth is predicted to be 8.1%. Looking ahead, although the pace of corporate earnings growth is likely to come under some pressure in 2019, dividends should be underpinned by a combination of rising profits and strong cash flow.


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