You are here: Home - Investing - Experienced Investor - News -

UK dividends rise but investors ‘won’t be satisfied for long’

0
Written by: Paloma Kubiak
24/04/2017
The weaker pound meant dividends paid by UK-listed firms rose 16.2% year-on-year in the first three months of 2017.

Dividend payments reached £15.3bn, a first-quarter record – or £15.4bn including special payments, according to the latest UK Dividend Monitor from Capita Asset Services.

It said that while the headline figure was impressive, the growth depended heavily on large exchange rate gains.

The report said the first quarter was heavily skewed towards dividends reported in foreign currencies, accounting for three-fifths of the total distributed.

Over the quarter, Capita said exchange rate gains added £1.7bn to the payout total, the equivalent of a 12% increase for the headline growth rate.

The £15.4bn total came despite a 90% decline in special dividends (dividends paid out in additional to the normal dividends) to just £110m. This was their weakest quarter in almost six years, and the fall was twice as large as Capita expected.

In addition to exchange rate gains, the stronger-than-expected rebound in BHP Billiton’s pay-out, provided the figure with a boost. Without this, the underlying dividends would have fallen slightly year-on-year.

Of the main industry groupings, oil, gas and energy, resources and commodities, consumer goods & housebuilding, and telecoms performed best. Retail & consumer services and healthcare & pharmaceuticals fell, mainly owing to lower special dividends. Overall, 11 out of 17 sectors paid more in quarter one this year than last.

Capita expects underlying dividends to rise 7.7% to £84.6bn in 2017, with three quarters of that growth coming from sterling’s weakness. This is based on the assumption that exchange rates don’t change.

Headline dividends are expected to rise by just 2.8% to £87.1bn. This is £0.4bn lower than Capita’s earlier forecast, owing to the weaker-than-expected special dividends in the first quarter.

‘Profit growth has been rather meagre from UK plc of late’

Justin Cooper, chief executive of Shareholder Solutions, part of Capita Asset Services, said UK firms had delivered a record for a first quarter before the big drop in special dividends was accounted for but investors won’t be satisfied for long.

He said: “The sugar rush of exchange rate gains won’t leave investors feeling satisfied for long. It’s going to wear off quickly in the third quarter, unless there is a second leg downwards in the pound. That cash is of course real, at least in sterling terms, but only long-term profit growth can deliver sustainable increases in the income from shares. Unfortunately, profit growth has been rather meagre from UK plc of late.”

Cooper said that the mid-cap companies will continue to outperform the large caps as the shine of sterling’s weakness fades.

“Global growth is picking up strongly and that should spur expansion in company earnings,” he said.

“Dividends will benefit in concert, though they tend to lag profit growth by about six months. That bodes well for the top 100, but in the meantime, the exciting story rests with the mid-caps. They depend most on the prospects for the domestic economy, while those in the top 100 are more related to global economic trends and the exchange rate. We think the mid-caps will continue to outperform their larger counterparts this year on a constant-currency basis, while the top 100 will lose the shine sterling’s weakness has burnished them with.”

 

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

The essential Your Money guide to the April 2018 tax changes

As we head into the 2018/19 tax year, a number of key changes take place to existing policies while some new i...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

YourMoney.com Awards 2018

Now in their 21st year, our awards recognise the companies offering the best products and services to consumers

Money Tips of the Week

Read previous post:
head in the sand
Behavioural scientist: why we bury our heads in the sand when it comes to money

Behavioural scientist Nathalie Spencer explains why we are often reluctant to change the way we handle our money.

Close