The UK possesses the highest yielding equity market in the developed world. This has often led to questions about how much British companies invest and whether shareholders prioritise short-term income over longer-term growth.
As ever, when looking at the constituents of the index, much of the extra yield comes from banks, oil companies, miners and drug stocks being the largest in the index, followed by some telecom and tobacco companies.
The UK versions of these stocks seem similar in yield to their peers elsewhere: Shell and Exxon yielding around 4 per cent, BATs and Altria yielding around 10 per cent, Barclays yielding 5 per cent, which is not far off Bank of America yielding 3 per cent, and the 6 per cent yield on Verizon is probably easier to maintain than the 11 per cent yield on Vodafone.
Furthermore, the best UK-listed growth stocks such as Halma, Rotork and Spirax Sarco seem unconstrained in retaining capital to invest.
Some of the concern about the level of investment amongst UK businesses comes from our national accounts.
According to the Office for National Statistics, using OECD Statistics, the UK invests around 14 per cent of GDP in fixed capital formation, while other members of the G7 invest closer to 17 per cent.
However, as the ONS points out, these numbers also seem less of a concern when investigated.
The countries with higher levels of fixed capital formation (Germany and Japan) have relatively large manufacturing and relatively smaller service sectors. They also have had larger capital allowances than the UK, though these allowances have been raised in the recent UK Budget.
All the same, the UK savings market has a rather large proportion in income funds; according to the Investment Association, income funds make up 20 per cent of UK assets, while they make up only around 10 per cent of global equity funds.
The relationship between a company and a dominant income-oriented shareholder can significantly influence the overall investment case.Also, income unit trusts pay out all the dividends they receive each year (pension funds and investment trusts can keep dividends in reserve); their managers are well aware that their unit-holders keep a beady eye on the dividend cheques that they receive from their investment.
This can (and, in my experience, does) lead the managers of the large UK income funds to put pressure on UK businesses to maintain dividends when the longer-term health of the company suggests cutting the dividend.
The relationship between a company and a dominant income-oriented shareholder can significantly influence the overall investment case. It is not difficult for a company to continue paying unaffordable dividends (until, say, the chief executive's retirement day), but the damage down to the capital value of the company will often be much larger than the dividends received.
Alternatively, an early dividend cut can allow a company financial flexibility to take advantage of a period of turbulence and, potentially, gain market share for the longer term.
Lastly, shareholders do need to be wary when the management teams of mature, high-yielding companies come up with plans to retain cash to invest ‘for growth’ in areas outside the core competence. Balanced UK equity funds receive dividends from mature companies and invest some of that into smaller, faster growing enterprises.
The stock market has a few hundred years of efficiently allocating capital in this way (with a few hiccups). The record seems fairly good and probably state-led initiatives to raise UK capital investment levels would do more harm than good.
Simon Edelsten was a global equity fund manager for more than three decades
