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A 'Knock-Out' Year For Investors In U.K. plc

Posted on July 17, 2017 at 12:45 PM

UK plc has had such a strong quarter when it comes to dividend payments that Capita Asset Services has upgraded its 2017 forecast for headline dividends to a record £90.6bn, up 7.0% year-on-year.

UK dividends hit an all-time record of £33.3bn in the second quarter of 2017, according to the latest Dividend Monitor from Capita Asset Services which provides infrastructure, services and expertise to clients across the capital markets. The 14.5% increase was the fastest in over three years, it said.This is apparently "thanks to robust underlying growth and high special dividends." Also those large forex gains due to the weakness of the pound.

UK Dividends - Capita Asset Services London July 17, 2017

Special payouts of £4.6bn were the second-highest on record for any quarter, owing mainly to a £3.2bn payment from National Grid on the sale of its 61% stake in its UK gas distribution business. "More cash will find its way to National Grid’s shareholders by way of a share buy-back" said Capita.

Meanwhile, Lloyds Bank, now enjoying surging profits, paid £357m as a special, on top of a £1.2bn regular dividend. 20 companies in total paid specials, the second-highest number in any quarter on record.

Underlying dividends (which exclude specials) reached £28.6bn, also a comfortable record, increasing 12.6% year-on-year. A little under five percentage points of this increase came from the effect of the weaker pound translating dollar and euro dividends at a more favourable exchange rate; one-third of the total distributed in the second quarter was declared in US dollars, with euros accounting for a small fraction more. That effect added up to £1.2bn in the second quarter.

"On a constant-currency basis, underlying growth was nevertheless an impressive 7.8%, the fastest increase in two years" said Capita Asset Services.

The sector breakdown is interesting - just look at domestic utilities and building materials and construction, with the highest percentage change year on year. Mining comes third - every company raised dividend payouts. "Glencore and Rio Tinto made an especially large contribution to growth" said Capita.

Source: Capita Asset Services, London July 17, 2017

“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." said Justin Cooper, Chief Executive of Shareholder solutions, part of Capita Asset Services.

"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” said Mr Cooper.

Indeed. Which is why I have put that comment in bold. Also, what dividend payments as well as the lack of them across sectors tell us is a complicated picture. Look at the barely positive as well as at the negative figures in the chart above by sector.

Categories: Investors, Scrutiny, Governance