Dividends on course for record in 2017


Dividends on course for record in 2017
  1. Dividends on course for record in 2017
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    UK dividends have hit a record high thanks to weaker sterling and underlying growth -but will they continue to grow? Marina Gerner finds out. Article Analysis and Commentary moneyobserver Marina Gerner Top News …
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Dividends on course for record in 2017

In the second quarter of 2017 UK dividends hit a new record at £33.3 billion, according to the latest UK Dividend Monitor from Capita Asset Services.

Dividends were up by 14.5% year-on-year, but income investors should not necessarily be rushing to celebrate. Dividends have been given a substantial boost from a weakened sterling. In addition, there's been a large haul of special dividends, and investors should bear in mind these payments usually only occur during the good times.

When stripping out special dividends overall dividends rose 12.6%, boosted by the weak pound. Weakness in the pound has been beneficial, as many firms declare their dividend payouts in dollars or euros and sterling's Brexit tumble increases their value in pound terms.

James Balfour, co-manager of the Aviva Investors UK Equity Income fund, points out the extent of currency effects on the level of dividends.

In 2016, over £28 billion of dividends were generated by six companies –  (HSBA), British American Tobacco (BATS), GlaxoSmithKline (GSK), AstraZeneca (AZN), Royal Dutch Shell (RDSB) and BP (BP.). Balfour says all of these either have large US businesses or revenues stated in US dollars.

"Therefore, there has been some underlying growth due to organic progression, but those companies using payout ratios to drive their dividend per share had significant benefits as the earnings were impacted positively by the FX," he explains.

"This is emphasised by the fact that the yield on the FTSE 100 in 2016 was 3.99% and is expected to be 4.16% in 2017. However, ignoring 2016, it is still the lowest since 2013. It just happens that the market cap of the index is up 6% since end of 2013 in sterling, but is down 16% in dollar terms.

"We would argue that we are seeing progress across UK listed companies, but the driving factor this year is that the major components of the dividend contribution have also likely been those most positively affected by the depreciation of the pound, which has magnified the impact."

But even discounting the currency effect, underlying dividends still rose by 7.8%, which was the fastest growth in two years, according to the report.

The strong quarter has led the company to upgrade its 2017 forecast for headline dividends to £90.6 billion, which forms a 7% increase year-on-year.

Dividend growth was particularly strong in the mining sector, led by Glencore (GLEN) and Rio Tinto's (RIO) pay-outs. In consumer goods and housebuilding, every company also increased its pay-out. Financials, the largest sector, grew its dividends too, with a particularly large payout from Lloyds (LLOY) Bank.

Justin Cooper, chief executive of Shareholder solutions, part of Capi…

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