19th October 2015
UK company shareholder payouts hit a new record for a third quarter, with continued strong growth, according to the latest UK Dividend Monitor from Capita Asset Services.
The July to end of September period saw headline dividends total £27.2bn, the highest third quarter payout on record, and an annual increase of 6.8%.
At the underlying level, which strips out special dividends, the payout hit £25.8bn. This represented a 5.9% year on year increase. Special dividends were 25.9% higher year on year, standing at £900m.
With the pound 8% lower than the dollar in the third quarter year on year, investors enjoyed £600m windfall, as many of the UK’s largest companies declare dividends in US dollars.
Financials again drove UK dividend growth, with payouts strong across the whole sector. A generous interim dividend from Lloyds Bank was a particular highlight, the second payment it has made this year, after a crisis-driven six-year hiatus.
Commodity stocks also showed growth, though mostly due to the stronger dollar. The outlook for dividends from this sector is troubled, however, with Glencore already announcing 2016 dividends will be cancelled, saving the company £1.5bn in a bid to shore up a shaky balance sheet.
The research showed that the supermarket price wars are costing shareholders dearly. Tesco’s dividend cancellation, plus the cut from Sainsbury’s, reduced the third quarter total by £1bn.
Mid-caps continued to demonstrate dramatically faster growth compared to the top 100, as they are more insulated from negative global trends, and are more exposed to rapid economic improvement in the UK. Dividends climbed 30.8% to £2.9bn at the headline level. By contrast, the top 100 only grew 4.1% year on year.
Top 100 dividend growth has lagged behind the mid-caps in nine out of the last ten quarters.
Overall UK equities will yield 4.1% over the next twelve months, with the prospective 12-month yield on the large-cap index standing at 4.3%, and 3.0% for mid-caps.
Capita’s forecast for 2015 is unchanged at £87.2bn headline, owing to strong Q3 special dividends. Underlying dividends will now reach £84.6bn, £200m less than previously forecast, mainly because Standard Chartered has halved its interim dividend, which it would have paid this week. Capita’s revised forecast represents a 6.8% year on year rise, the fastest increase since 2012, and a new record for the underlying total.
The outlook for 2016 is less rosy. With £2bn of cuts from Glencore and Standard Chartered alone, and risks of more cuts to come from commodity firms in particular, growth will be much slower. Capita’s preliminary 2016 forecast is £89.8bn, an increase of just 3.0% year on year.
Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services said: “Income investors have had terrific dividend payouts in 2015 so far, shrugging off some high profile casualties like Tesco. But the outlook is gloomier. Profits are lower relative to dividends than at any time since 2009, and we have seen some of Britain’s biggest dividend payers announce drastic cuts for the year to come, with the prospect of more to follow.
“Companies tend only to cut their dividend in extreme circumstances, either if their profitability is permanently lower, or balance sheets are under pressure, so we still expect growth overall next year. The top 100 in particular is struggling to make any headway. Income investors can take comfort in the fact that equities continue to offer a very attractive yield compared to other asset classes, but with risks abounding, they should ensure they keep their portfolios well diversified.”