Dividends help investments pay off despite dismal decade for FTSE 100

Published on Saturday 2 January 2010 16:28

DESPITE the dismal performance of the FTSE 100 which fell by 22 per cent over the last decade, certain publicly listed companies still offer a lucrative return, according to research by Barclays Wealth.

The FTSE 100, the UK's flagship index, entered the Noughties at its all-time high. It closed at 6,930.20 on 29 December 2009, compared with 5,437 on 29 December last year. While Barclays Wealth said investors could be forgiven for tiring of equities based on that performance, it explained that the FTSE 100 moves into positive territory if dividends are included.

Not all companies pay out dividends, but Barclays Wealth said investors must not lose sight of the fact that the returns from equity investing are composed of price appreciation and dividend payments. Over the last decade, United Utilities' share price lost 8 per cent yet the company generated a 90 per cent return when dividends are included.

The fall in the value of sterling has also boosted the returns of British investors with overseas exposure, especially those with a presence in the Eurozone and emerging markets, such as China and India.

Dean Turner, of Barclays Wealth's investment strategy team, said: "Equity investors often ignore the contribution dividends can make. Traditionally, tobacco companies and utilities pay out significant dividends. Over the last decade, this has led to both sectors generating strong total returns."

The firm's research reveals that British American Tobacco was the top performer in the FTSE 100 over the course of the decade. It provided a total return of 880 per cent. It was followed by Imperial Tobacco with a return of 658 per cent and Reckitt Benckiser Group on 645 per cent.

At the other end of the spectrum, Royal Bank of Scotland proved to be one of the worst performers with a total return of -85 per cent. The bank had to be bailed out and is now 84 per cent state-owned. Other companies in the bottom five include ARM Holdings, which returned -80 per cent, and worst of all was Colt Telecom Group with a -99 per cent return.

Henk Potts, equity strategist at Barclays Wealth, has picked ten stocks for this decade based on the criteria of strong brand, leading market position, growingmarkets, decent initial yield and potential for growth.

Among the companies he is tipping are BP, Royal Dutch Shell and Vodafone. He has only chosen one bank, HSBC, which has fared better in the crisis than many of its rivals.