BlackRock
Updated 19 Jul 2024
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Disclaimer

This is a non-independent marketing communication commissioned by BlackRock. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

In recent years, investing in UK companies has been tough. Although many companies continued to perform well operationally, share prices remained stubbornly low. Low share prices were not enough by themselves to tempt investors back to the UK market.

However, a number of factors appear to be starting to make a difference. There has been significant buyback activity. Buybacks are where a company buys its own shares back from the market, reducing the total number of shares outstanding. Shell announcing a $3.5bn buyback at the start of May,1 alongside many of the other major FTSE 100 companies including BP,2 Unilever,3 Barclays,4 and HSBC.5 By reducing the number of shares in issuance, buybacks should make each share worth more.

H2: Merger activity

At the same time merger and acquisition is picking up, with a number of high profile bids for UK companies, including Anglo American, Direct Line and Currys6. US private equity investors are taking a growing interest in UK companies, apparently recognising that there is value there.7

All of these factors are also true for the small and mid-cap part of the market. They have suffered most from the general unpopularity of the UK market and now appear cheap relative to their own history and to their international peers. They are also seeing both buyback and takeover activity, which is helping to support share prices and are an important source of potential growth and income for UK investors.

H2: Dividend strength

While we believe we may be on the cusp of a revival for the UK stock market, predicting when and how that revival will build momentum is difficult. This is where dividend stocks come in. A focus on growing dividends can provide a measure of stability and predictability in various market cycles. It is also a source of potential long-term growth, compounding over time, until share prices recover.

The dividend yield on the UK market is higher than almost any other major market. The FTSE 100 has a yield of 3.6% . The FTSE World index, for example, has a yield of 1.9%.8 However, investors are not confined to larger capitalisation companies when looking for income. The FTSE Small Cap has a yield of 4.0%8. The FTSE 250, which represents medium-sized UK companies, has a slightly lower yield, but still holds income opportunities. In effect, investors in the UK market can target traditionally higher growth areas such as smaller companies, but could still receive a growing dividend.

It is worth noting that this dividend income could grow over time. Dividends in the UK market are currently growing at around the longer-term rate of inflation, at 2-3%9. On the BlackRock Income & Growth Investment Trust, we specifically seek out companies that are growing their dividend faster than the market. These dividend growth stocks are likely to have sustainable cash flow, which puts them in a position to grow their payouts over time.

There is one final piece of the puzzle that may help UK companies at the margin. There is growing political will to reinvigorate the UK market. Ahead of the election, both Labour and the Conservatives have made it clear they recognise the problems, and want to find solutions. Both sides are looking at ways they can harness pension fund capital to support the UK market, and encourage greater activity.10 11

We believe targeting growing dividends can guide investors to companies with stable, long-term growth and capital discipline. This should be a more productive strategy than targeting the highest dividends and helps us identify companies with growth and stability. Ultimately, there are reasons to be hopeful about the outlook for the UK market, but in the meantime, dividends allow us to wait until the market recognises the value in UK companies.

1 The Guardian - Shell unveils new £35bn share buy back - May 2024

2 Morningstar - BP Shares surge after earnings and buybacks - Feb 2024,

3 Nasdaq - Unilever commences share buyback program - May 2024

4 Barclays - Commencement announcement - April 2024

5 Morningstar - HSBC launched $2bn buyback - February 2024

6 This is Money - The £60bn foreign takeover frenzy - May 2024

7 Private Equity Wire - US PE acquisitions of UK businesses up 35% in past year – 3 May 2024

8 FT - markets data - May 2024

9 Computershare - Dividend Monitor, Q1 2024 - April 2024

10 House of Lords Library - King’s Speech 2023: Pensions - November 2023

11 The Guardian, Rachel - Reeves plans pensions reform as part of Labour’s growth plan - November 2023

Risk Warnings

Investors should refer to the prospectus or offering documentation for the fund’s full list of risks.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Equity risk: The value of equities and equity-related securities can be affected by daily stock market movements. Other influential factors include political, economic news, company earnings and significant corporate events.

Trust Specific Risks

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Liquidity Risk: The Fund's investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Important Information

This document is marketing material.

In the UK this is issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

This document is marketing material. The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The investment trusts listed in this document currently conduct their affairs so that their securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to nonmainstream investment products and intend to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct Authority’s restrictions which apply to non-mainstream investment products because they are securities issued by investment trusts. Investors should understand all characteristics of the funds objective before investing. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2024 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

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