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Dividends come back into favour

Good old-fashioned dividends are coming back into vogue. Nearly three years after previously soaring stocks came crashing down, investors are starting to show more interest in getting a steady income stream from equity investments.

Merrill Lynch Investment Managers is one fund manager that is making a push for high-yielding stocks, rejecting the idea that they are lower-growth investments simply because income is gained at the expense of capital growth


View graph.

Michael Jones, head of UK third-party retail at MLIM, explains: "In the late 1990s, people weren't worried about dividends and were just chasing the stock price [gains]." He adds: "For example, if capital gain was 20% every year with a 2% to 3% yield then dividends were a secondary concern. Now, if capital gain is 5% to 6% and yield is 3% to 4% the dividend has more value."

To illustrate how high-yield stocks in the UK, on average, deliver higher growth than low-yield shares, MLIM compares FTSE 350 high-yield performance and low-yield indices between January 1986 and August 2002.

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