Friday, May 29, 2020

UK plc set to deliver knockout year for investors

UK dividends hit an all-time record of £33.3 billion in the second quarter of 2017, according to the latest Dividend Monitor from Capita Asset Services.

The 14.5% increase was the fastest in over three years. It reflected very healthy underlying growth, topped up with a substantial boost from the weak pound, plus a large haul of special dividends.

Indeed, special payouts of £4.6 billion were the second-highest on record for any quarter, owing mainly to a £3.2 billion payment from National Grid on the sale of its 61% stake in its UK gas distribution business.

More cash will find its way to National Grid’s shareholders by way of a share buy-back. Meanwhile, Lloyds Bank, now enjoying surging profits, paid £357 million as a special, on top of a £1.2 billion regular dividend. 20 companies in total paid specials, the second-highest number in any quarter on record.

Underlying dividends (which exclude specials) reached £28.6 billion, also a comfortable record, increasing 12.6% year-on-year.

A little under five percentage points of this increase came from the effect of the weaker pound translating dollar and euro dividends at a more favourable exchange rate; one-third of the total distributed in the second quarter was declared in US dollars, with euros accounting for a small fraction more.

That effect added up to £1.2 billion in the second quarter. On a constant-currency basis, underlying growth was nevertheless an impressive 7.8%, the fastest increase in two years.

Growth was particularly strong in the resurgent mining sector, where every company raised payouts.

In the consumer goods and housebuilder grouping, every company also increased its payout. The largest sector, financials, grew its dividends, but more slowly than the average.

On an underlying basis, the increase from mid-cap and top 100 companies was very similar in the second quarter, up 12.2% and 12.8% respectively, but on a constant-currency basis, the mid-caps outpaced their larger rivals by about three percentage points.

The excellent second quarter means Capita Asset Services has upgraded its forecast for the year, to add in the unexpectedly high special 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 £90.6 billion.

This is an increase of 7.0% year-on-year, and smashes the previous record set in 2014. Capita Asset Services forecasts underlying growth (excluding specials) of 7.4%, bringing underlying dividends to a record total of £84.4 billion, a very slight decrease (£200 million) on its previous forecast. The decrease reflects the removal of Sky’s final dividend pending its acquisition by Fox. On a constant-currency basis, that means underlying growth of 4.3%.

The strong outlook has pushed the prospective yield to 3.7%, up from 3.6% in April.

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