Can UK dividends balance out gilts?

In spite of these figures, research from Capita Registrars shows that investors’ optimism on UK stocks as a whole seemed to cool in the second quarter of 2012, as investors reduced their equity holdings by the highest amount in five years.

Research into the transactions of 1.6m individual shareholders on the registers of the UK’s listed companies notes that between March and May 2012 private investors sold £1bn of shares, almost five times more than the £221m they had bought in the first quarter.

Charles Cryer, chief executive of Capita Registrars, explains: “Private investors have sold off more shares even than in the summer of 2008. The tone has certainly changed in recent months.

“At the beginning of 2012 there was optimism the economy had turned a corner and the eurozone crisis had quietened down. This encouraged private shareholders very cautiously to add to their holdings.

“It seems their caution was justified as the market rally faded, and the economy sank back into recession. The eurozone crisis has now reached another critical phase and hopes for the global economy have been dampened.”

Although equities are paying out exceptional dividends, Mr Cryer concludes, consistent capital growth is in short supply and investors “remain nervous” on equity markets overall. In the short term, even ultra-low interest rates and yields on government bonds may not be enough to tempt investors back into stocks.

Nyree Stewart is deputy features editor at Investment Adviser