Best of Both Worlds: Income and Total Return

The UK is known for its dividend culture, offering yields that are attractive compared to those available internationally.
Income and total return investing come hand in hand. Employing a yield premium approach requires a consistent strict valuation focus, ensuring a total return approach.
Yield is available across diverse sectors within the UK market, allowing you to prioritise investing in quality companies with compelling valuations, sustainable payouts, and growth potential.

The UK market is famous for its dividend culture, but that’s just the beginning of its appeal. After five years of double-digit total returns in UK equities and, following many decades of investing in these markets, we believe that adopting a balanced investment strategy, one that targets both income and total return is a winning formula for success with UK equities.

Attractive UK Yields

The UK is known for its generous approach to dividends, but I think it’s worth stating how this stacks up globally. Quite simply, most developed markets offer a lower yield. So, while the FTSE 100 yields around 3.5%, this compares to 1.3% in the US and just over 1.8% globally¹. This makes the UK’s yield premium a compelling building block for your returns.

It’s also important to recognise that yield in the UK is not confined to large cap stocks, especially at this stage in the market cycle. Mid cap stocks currently offer exceptional valuation opportunities and comparable yields with their larger UK counterparts, with the FTSE 250 ex Investment Trusts yielding 4.1%¹. The ability to invest across the market cap spectrum provides more options for active managers looking at income and total return.

Appealing capital returns

Going back to first principles, there are several factors that contribute to your total return including dividend payments, share buybacks, earnings multiples and earnings progression. Some of these are interrelated – for example share buy backs mechanically improve earnings progression.

At a fundamental analysis level, the dividend yield is a valuation metric largely linked to earnings yield. UK corporate earnings growth is forecast to surpass 7%¹ for the year ahead which, supported by the current surge in share buybacks, is helping drive shareholder returns. On top of that, current valuations make this market more attractive than ever.

Diverse dividend opportunities

High-yield stocks in the FTSE All-Share often trade at attractive valuations, enabling you to invest for capital growth alongside income. Interestingly, the attractive dividend yields on offer in the UK is not limited to a select number of sectors or stocks. Yield is available across diverse sectors, including cyclical stocks that frequently carry a yield premium. This market dynamic means you don’t need to “reach for yield” by chasing unsustainable dividends. Instead, you’re able to flexibly employ an approach that prioritises quality companies with compelling valuations, sustainable payouts, and growth potential. This enables portfolio construction that delivers above benchmark income without sacrificing capital growth.

Diverse Dividend Yields offered across sectors

Diverse Dividend Yields offered across sectors.

Source: Bloomberg as at 30 September 2025.

Income and Capital: Best of Both Worlds

Employing a yield premium approach leads you to adhere to a consistent strict valuation-based approach, ensuring alignment with a total return approach. Investors don’t have to choose between income and capital growth. In fact, they come hand in hand, it’s the best of both worlds.

"The ability to invest across the market cap spectrum provides more options for active managers looking at income and total return."

Sources

¹Source: Bloomberg as at 21 October 2025.

Important Information

This information is issued and approved by ClearBridge Investment Management Limited (‘CIML’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.

The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. ClearBridge Investments has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.

This document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this document, or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited.

The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.

Past performance is not a guide to future returns.

The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.

The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.

Please note the information within this report has been produced internally using unaudited data and has not been independently verified. Whilst every effort has been made to ensure its accuracy, no guarantee can be given.

The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the securities discussed here were or will prove to be profitable.

It is not known whether the stocks mentioned will feature in any future portfolios managed by ClearBridge Investments. Any stock examples will represent a small part of a portfolio and are used purely to demonstrate our investment style.

Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.

Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.