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UK dividends hit first quarter record

Joanna Faith
Written By:
Joanna Faith

Dividend income for holders of UK shares jumped to a record £19.7bn in the first three months of the year, putting investors on track for £100bn in payouts this year.

The payments rose 15.7% in Q1 2019, setting a first quarter record, according to Link Asset Services’ UK Dividend Monitor.

The increase was influenced by large one-off special dividends, with the biggest coming from global mining company BHP which paid a £1.7bn special dividend from the proceeds of the disposal of its US shale oil interests.

In contrast, underlying dividends (excluding specials) grew slightly more slowly than Link expected, rising 5.5% to £17.6bn. Two-thirds of the underlying growth rate was due to exchange rate effects.

The two largest-paying sectors, oil and pharmaceuticals, accounted for almost two-fifths of the Q1 total. Growth in these two sectors was almost entirely due to positive exchange rate effects.

With the exception of a small increase from BP, the biggest companies all held their dividends flat on a constant-currency basis. Tobacco stocks, by contrast, raised their payouts substantially. Weaker sectors include telecoms and retail.

Link said the top 100 dividends outperformed the mid-caps, even after special dividends and exchange rates were taken into account, reflecting a slowdown in earnings growth for companies outside the multinational super-league. After stripping out exchange rates and special dividends, top 100 payouts rose 2.6%, while mid-cap payouts fell 2.5%.

Link Market Services chief operating officer Michael Kempe said: “The first quarter is usually just the warm-up act for dividends, but this year it has put in a stellar performance. Miners are taking centre stage with large special dividends, but these reflect restructuring and asset sales rather than trading profits; underlying growth from this sector is now much more normal after grabbing the headlines over the past couple of years.

“Uncertainty abounds in markets, about the world economy, and about the outlook for the UK in the light of the turmoil surrounding Brexit. For dividends, however, we are confident that 2019 will show good growth, even if Q1 was, in truth, a touch weaker than we expected on an underlying basis.”

A spokesperson for The Share Centre said: “Looking forward, Brexit remains at the forefront of UK dividends as we move into 2019. Sterling has been particularly sensitive to market noise and has had a large impact upon dividend returns for investors, especially among the multinational companies as a weaker sterling means more value for multinationals that derive earnings from the US.

“Although sterling has strengthened slightly in the first quarter as investors start to expect a softer Brexit, the exchange rate still remains way below its comparable level back in 2018 resulting in a 3.7% growth boost felt mostly by the oil and pharmaceutical companies who made up almost two-fifths of Q1 payouts.”