Brexit-hit pound provides investors with dividend joy

Investors are poised for a 'knockout year' after dividends topped a record £33.3 billion in the second quarter, a report out today suggests.

Capita Asset Services' research found dividend payouts were up 14.5% year-on-year. Picture: Daniel Leal-Olivas/AFP/Getty Images

The latest Dividend Monitor from Capita Asset Services, part of outsourcing giant Capita, shows that the total amount paid out was up 14.5 per cent year-on-year, thanks to a bumper level of special dividends and a boost from the Brexit-buffered pound.

Sterling’s slide since last June’s EU 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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Even on an underlying basis, which excludes special dividends, there was a “healthy” 12.6 per cent year-on-year rise, Capita noted, thanks to that weak pound.

The strong second-quarter performance has led the firm to upgrade its 2017 forecast for headline dividends to a record £90.3bn, which would be up 7 per cent on last year.

Justin Cooper, chief executive of Shareholder Solutions, part of Capita Asset Services, said: “The gloves came off in the second quarter as UK plc limbered up to deliver a knockout year in dividends.

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

“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.”

Special payouts of £4.6bn were the second-highest on record for any quarter. This was underpinned by a very large payment from National Grid, which accounted for three-quarters of the headline number.

By sector, the largest dividends came from financials, but they grew more slowly than the average, despite a very generous payout from Lloyds Banking Group.

Growth was particularly strong in the resurgent mining sector, while consumer goods and housebuilders also performed well, with every company raising its payout.

Cooper said: “The relative strength of the UK consumer, until recently at least, and surging economic growth abroad has supported stronger dividend growth than we have seen in some time.

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

He added: “Most of the excitement for 2017 is now behind us. As we move towards 2018, the extent to which the weakening UK economy continues to diverge from improving trends elsewhere in the world will determine which companies are still able to deliver strong dividend growth.

“The uncertainty over the economy, the Brexit negotiations, and the unstable political situation are key factors to watch.”