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UK companies hike dividends to record levels

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UK companies are increasing their payouts to shareholders at the fastest rate in three years, buoyed by strong profits growth, the weak pound and special dividends from a number of firms, according to the latest Capita Asset Services Dividend Monitor.

UK companies distributed an all-time record £33.3bn in dividends from March to June, comfortably beating the previous record of £29.1bn set over the same period last year.

Dividend payouts were buoyed by a number of special dividends, which – at £4.6bn – were the second-highest on record. This was largely attributable to a £3.2bn payment from National Grid on the sale of its 61% stake in its UK gas distribution business. Lloyds Bank, which is currently seeing improved profits, paid £357m as a special, on top of a £1.2bn regular dividend, while ITV and Intercontinental Hotels also made large payments.

Weaker sterling

Underlying dividends (excluding these special dividends) reached £28.6bn, an increase of 12.6% year-on-year. Around 5% of this increase was attributable to the weaker currency – one-third of the total distributed in the second quarter was declared in US dollars, with euros accounting for a small fraction more – adding £1.2bn to dividends in the second quarter. Without this effect, dividends rose 7.8%.

A resurgent mining sector was an important contributor to increasing payouts. Glencore restarted dividends for the first time since 2015 – it had cancelled them as slumping commodity prices hit its profits. Rio Tinto also paid a much larger dividend than the market expected, while higher copper production and a big increase in profits on silver mining boosted the respective payouts of Antofagasta and Fresnillo.

Weakening financials

The largest dividends – £10.3bn – came from financials, but they grew more slowly than the average; insurance dividends fell year-on-year with cuts from Old Mutual and Admiral. Consumer goods and housebuilders also performed well – every company raised its payout.

Mid-cap and top 100 growth was very similar in underlying terms, at 12.2% and 12.8% respectively. Capita said it expects the prospective yield on equities to be 3.7%.

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