Weak pound to provide dividend delight for shareholders

The slump in the value of the pound in the wake of the EU vote will herald a dividend bonanza for many shareholders '“ at least in the short term.

Holiday Inn owner paid out a large special dividend. Picture: Steven Scott Taylor

Sterling’s devaluation in the months running up to, and especially in the days following, the 23 June decision to leave the EU is set to boost UK dividends by £4.3 billion this year, according to the latest dividend monitor from Capita Asset Services.

About two-fifths of the dividends paid by UK-listed companies are declared in dollars or euros. As the pound fell in the wake of the referendum, these payments are being converted at a much weaker exchange rate, bringing a boost to income investors based in the UK.

In the second half of the year alone, Capita expects exchange rate gains of just over £2.8bn, adding to the £1.4bn-plus already booked in the first half as the pound gradually lost ground ahead of last month’s vote.

Even though steep cuts are still coming through from a number of large mining concerns, banks and other stocks, overall, they are being largely offset by the much weaker pound, the latest dividend monitor notes.

In addition to exchange rate gains, a flurry of large special dividends in the second quarter is swelling investors’ bank balances.

The largest was from Holiday Inn-owner Intercontinental Hotels, which distributed £1bn after selling hotels in Paris and Hong Kong, while pharmaceuticals giant GlaxoSmithKline paid out £970 million following an asset swap with Novartis.