FTSE’s Dividend-Paying Stocks: 5 Reasons Why These Shares Will Be In Limelight

Summary

• FTSE 100 has recovered partial year-to-date losses and has been oscillating comfortably-above the level of 5,500 since mid-April 2020
• The share prices of major companies have corrected substantially in the last six-month stretch
• A fair chance of better dividend payouts is there as an improved business structure will assist in mitigating the persisting pain in the commerce

UK stock markets have been recovering steadily after falling off the cliff during the February-March period of 2020. The financial markets across the world observed a similar plunge earlier this year after the coronavirus pandemic started to unravel its deadly side. Who’s who of the capital markets encountered severe selling pressure during the corresponding time.

The benchmark FTSE 100 nosedived nearly 33 per cent from 7,457.02 (19 February 2020) to a level of 4993,89 as on 23 March 2020.

Other major global indices namely New York Stock Exchange-controlled Dow Jones Industrial Average (DJIA), Japan’s Nikkie 225, Germany’s DAX, and France’s CAC 40 recorded a fall of at least 30 per cent.

Covid Cascade

The aftermath of Covid-19 pandemic not only caused massive disruption in the highly-active business functioning within the countries but also impacted international trade. However, the situation is seemingly getting back on the positive track as the government has started easing the restrictions on the business activities and has also extended several relaxations in the standard operating procedures.

FTSE 100 has recovered partial year-to-date losses and has been oscillating comfortably-above the level of 5,500 since mid-April 2020. The investment intention of retail, as well as a large segment of high-networth individual (HNI) investors has taken a back seat due to the persisting volatility and turbulent stock market activity nowadays.

The ongoing transition of the United Kingdom exiting the European Union coupled with the subduedness on the back of the coronavirus pandemic have taken a huge toll on the investor’s confidence.

The Silver Lining in Stocks

Analysts and policymakers are expecting a continued recovery in the market sentiments as restarting the trade and businesses, will restore the confidence of domestic, as well as foreign institutional investors (FIIs). Though the certainty of prospective positive outcomes is still unclear until there is an official announcement of a clinically-approved vaccine for coronavirus.

However, investors can look for opportunities in the downcast market as the share prices of most of the heavyweight stocks on FTSE 100 across many sectors could be available at discounted prices.

Moreover, people can look forward to taking considerable positions in dividend-paying stocks. A cut in dividend payouts in the present year 2020 may lead to bulkier dividends in the years to come.

We take a look at five reasons why FTSE’s dividend-paying stocks will be in the limelight.

Better dividend yield

The most prime benefit of buying dividend stocks now is the relatively better dividend yields as compared to the purchases made during earlier period of the year 2020. The share prices of major companies have corrected substantially in the last six-month stretch. The investors who are looking to invest with a long-term perspective of at least more than three years are expected to gain most out of the dividend stocks.

A comparably higher dividend yield along with the capital gains on the respective stocks can be a sure-shot possibility when markets recapture or breach its previously-held levels.

Companies Restarting Dividend Payouts

The small-scale companies and larger corporations that have deferred their plans of paying dividend to the investors are seemingly looking forward to rewarding the investors with dividends.

An upswing in the business receivables and a significant QoQ improvement in the topline is widely expected as the government has allowed major businesses to operate within their maximum permissible capacities, with no restrictions in the areas with less traces of Covid-19 cases.

Hopes of Easing Brexit Dilemma

The transition process of the United Kingdom exiting the European Union will last until December 31, 2020. The authorities including the Bank of England and the Chancellor of Exchequer’s Office are likely to exercise their powers to make sure a smoother transition and the incorporation of relatively trouble-free trade terms with the European Union from January 01, 2021.

More clarity on the business terms post-Brexit will help businesses across the country to map definitive arrangements for the greater good of the operations. A fair chance of better dividend payouts is there as an improved business structure will assist in mitigating the persisting pain in the commerce. However, the ongoing uncertain terms between the UK and EU can develop a window of increased market volatility and economic risk, specifically in the UK.

Falling Great Britain pound

The sliding value of Great Britain pound (GBP) against the United States dollar (USD) might be positive for the businesses across the UK as all the enterprises with a considerable exposure to exports are set to benefit from this. According to the latest data, the GB pound has dropped nearly 4.11 per cent to 1.2834 as on 28 September 2020 against the US dollar from a level of 1.3384 as on 1 September 2020.

The United Kingdom being the second-biggest exporting nation after Germany in the European continent, the favourability of lucrative gains is higher with the plummeting value of GBP vs USD in the foreign exchange market. The foreign exchange gain will likely take exporting companies to their respective cash-rich positions.

Long-Term Investment

The investment purpose of a large section of potential investors has changed to long-term with a buy and hold strategy as continuing volatility has created a trader-only market. Those investors who are unable to dedicate an active part of their lives to the market are visibly frightened to go after a short-term gain as the markets are now highly sensitive to the everyday domestic development and of course, to the happenings on the Wall Street.

Therefore, a shorter gain by investing for the long-term in some of the promising dividend-paying stocks is relatively better than acquiring a slightly bigger chunk by investing for the short-term with the present volatile conditions.