Brexit-hit pound provides investors with dividend joy

Patrice Gainsbourg
Julho 17, 2017

The quarterly UK Dividend Monitor report from Capita Asset Services showed dividends in the three months to June 30 hit £33.3bn - a record for the second quarter of the year.

This was thanks to a killer combination of robust underlying growth, high special dividends, and those large foreign exchange gains.

Underlying dividends were £28.6bn, a rise of 12.6 per cent from 2016.

United Kingdom companies are heading for the highest total of dividends ever paid this year after a record performance in the second quarter, swollen by the lower pound, which increased the value of payments in dollars to British investors, and a healthy flow of special dividends. Financial companies also grew their dividends, but more slowly than the average.

Dividend growth was particularly strong in the mining sector, led by Glencore (GLEN) and Rio Tinto's (RIO) pay-outs.

Justin Cooper, chief executive of Shareholder Solutions, part of Capita Asset Services, said: "The gloves came off in the second quarter as United Kingdom plc limbered up to deliver a knockout year in dividends". Despite a likely much quieter second half, thanks mainly to one-off factors and the elimination of exchange-rate effects, it now expects 2017 headline dividends (ie including specials) of £90.6bn. The decrease reflects the removal of Sky's final dividend pending its acquisition by Fox.

Sterling's slide since last June's European Union referendum has given a lift to many dividend payouts, as it means major firms with overseas earnings enjoy a currency tailwind when converting them back into pounds.

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"The gloves came off in the second quarter, as United Kingdom plc limbered up to deliver a knockout year in dividends". Average yields are expected to be 3.7%, more than nine times the return on the average easy access savings account, which now pays a meagre 0.4%.

"Exchange rate gains have come not only for big multinationals declaring dividends in foreign currencies, but also for others with overseas operations, or export sales, supercharging their profits and so their dividends", he said.

"Shareholders can be thankful they had punchy special dividends and the weak pound in their corner, but improving profits have also played their part", Mr Cooper added.

"The relative strength of the United Kingdom consumer, until recently at least, and surging economic growth overseas has supported stronger dividend growth than we have seen in some time". As we move towards 2018, the extent to which the weakening United Kingdom economy continues to diverge from improving trends elsewhere in the world will determine which companies are still able to deliver strong dividend growth.

"Even though the second half is going to be much quieter, investors can look forward to dividends hitting a new record this year".

This may surprise some investors, who thought the United Kingdom economy was on the ropes, thanks to political and Brexit wrangles.

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