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Investors in line for post-Brexit dividend bonanza

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18/07/2016
Income investors could be in line for a dividend bonanza as a result of sterling tumbling post-Brexit, according to the latest Capita Dividend Monitor study.

The headline dividend forecast for 2016 has been upgraded 3.8% to £82.5bn, as the weak pound means dividends declared in euros and dollars will be worth more in the immediate future.

UK dividends rose 7.6% to a quarterly record of £28.8bn in quarter two, boosted by a spate of special payments from the likes of Lloyds Bank, Intercontinental Hotels, GlaxoSmithKline, and ITV.

In all 22 UK companies paid out a special dividend in the last quarter, the highest number on record.

The only industry not to see rising dividends was basic materials, with dividends from mining companies halved.

Financial companies were the biggest dividend payers, with Lloyds doubling its dividend and big increases from life insurers.

However, excluding special dividends, the picture is less positive as underlying dividend payouts fell 2.7% to £25.2bn in the second quarter.

This was down to weakness in some key industries in the UK stock market, such as oil and gas, mining and supermarkets.

Justin Cooper, chief executive of shareholder solutions, part of Capita Asset Services, which produced the study, said: “The Brexit vote has completely changed the picture for dividends this year and beyond. The timetable for the UK’s departure from the EU, and the manner of its subsequent relationship with it, are crucial to understanding the future for income investors.

“In the short term, investment and consumption will be depressed while the country waits for a response from the new government, and for a Brexit timetable to emerge. Dividends will suffer from any slowdown in economic growth, particularly among the UK’s mid-cap companies, though a persistently weak exchange rate will cushion sterling investors in the UK’s large multinationals.

“The longer term is difficult to predict. It depends on negotiations and implications regarding access to the single market and external trade negotiations with non-EU countries.”

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