Data from Absolute Strategy Research, a City research firm, shows 13.8 per cent of firms on the FTSE 350 index have shunned dividend payments this year, versus 11.9 per cent two years ago.
Proxy data from the firm also shows the proportion of non-dividend paying companies has more than doubled over the last twenty years. It comes despite increasing demand from investors to pay dividends amid plunging corporate bond yields.
Charles Cara, a researcher at Absolute Strategy Research, told City A.M.: “Back in the 1980s about 6.5 per cent of the market was non-dividend paying. It had an explosive rise to nearly 20 per cent in the dot-com boom and then fell back. But over the last 10 years it’s risen. If you exclude the dot-com period we are at a high.”
The dot-com stock market bubble saw non-dividend firms on the FTSE shoot up from nine per cent in 2000 to 19 per cent in 2001, as startup firms shunned traditional investor payouts.
The rise in the proportion of non-dividend firms is at odds with investor demand for companies paying dividends as a substitute for owning expensive bonds.
Company bond yields versus yields on shares are at their widest for 30 years, forcing many investors to seek higher dividend paying firms.
“If the bonds are safe enough to buy at yields of 1.8 per cent to 2.9 per cent, why shouldn’t investors buy the equities with yields of three per cent to 7.1 per cent,” Cara said in a research note.
He added that telecom and utilities were both sectors with high yields. The majority of non-dividend paying firms are thought to be in the natural resources and exploration sector.