Capita Asset Services, the shareholder services arm of outsourcing group Capita, said in its latest study of the sector that underlying dividends reached a first-quarter record of £15.3 billion, a year-on-year jump of 16.2 per cent, and including special dividends rose 9.5 per cent to £15.4bn.
The latter came despite a steep drop in special dividends, which “took the shine off the headline rate”, and slumped 90 per cent to £110 million, marking the weakest quarter in almost six years.
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“After the huge haul of specials in 2016, a normalisation this year was on the cards,” Capita stated. “Even so, the fall in the first quarter was twice as large as [we] had pencilled in, and knocked five percentage points off the headline growth rate.”
Performing best were the likes of oil, gas and energy, and consumer goods, while retail and consumer services, for example, suffered lower levels of special dividends.
Capita also said the total headline figures very much depended on considerable exchange-rate gains, with weaker sterling accounting for 12 percentage points of the year-on-year increase, equivalent to a £1.7bn contribution.
In addition, the first quarter “is the most heavily skewed towards dividends declared in foreign currencies, accounting for three-fifths of the total distributed”.
Mining giant BHP Billiton alone contributed a further 3.5 percentage points with a better-than expected rebound in its payout.
However, Capita stated that without the combined effect of the “unexpectedly large boost” from BHP Billiton and foreign-exchange movements, underlying dividends would have shown a slight year-on-year drop, “indicating that sustained, core growth is still hard to come by”.
Justin Cooper, chief executive of Capita’s shareholder solutions division, commented: “UK plc delivered a record for a first quarter, at least before the big drop in special dividends was accounted for.”
However, he added that the “sugar rush of exchange rate gains won’t leave investors feeling satisfied for long. It’s going to wear off quickly in the third quarter, unless there is a second leg downwards in the pound.
“That cash is of course real, at least in sterling terms, but only long-term profit growth can deliver sustainable increases in the income from shares. Unfortunately, profit growth has been rather meagre from UK plc of late. Global growth is picking up strongly, however, and that should spur expansion in company earnings.”
Capita predicted that underlying dividends will rise 7.7 per cent to £84.6bn this year, with 75 per cent of that growth from sterling’s weakness, assuming exchange rates do not change. Headline dividend growth is expected to slow to 2.8 per cent on weaker special dividends.