Sterling slump provides a windfall for income investors as UK dividends leap 16% - but is it a one-off?

  •  Dividends paid out by UK companies reached £15.3bn in the first quarter of 2017
  •  Meagre profit growth from UK plc could mean this windfall is short lived though

Investors have seen dividend payments leap 16.2 per cent since the start of the year as the Brexit-hit pound has boosted the value of overseas earnings for big companies.

Dividends paid out by UK listed businesses reached £15.3billion for the first quarter of the year as multinationals befitted from a lift to their overseas earnings triggered by the favourable exchange rate, according to the Capita Asset Services' research.

With the pound sitting at $1.28 rather than the $1.48 it was at immediately before the Brexit vote, the dollar earnings of UK-listed businesses made today are worth 14 per cent more without the companies having to do anything different.

Dividend payments from UK companies have leapt 16.2 per cent since the start of the year.

Dividend payments from UK companies have leapt 16.2 per cent since the start of the year.

The report found that the fall in sterling was responsible for 12 per cent of the year-on-year headline increase in total dividends paid out so far.

The figures were heavily impacted by one company in particular, with a stronger-than-expected payout from the world's biggest mining company BHP Billiton adding 3.5 per cent to the headline growth rate.

Telecoms firms, consumer goods businesses, energy and commodities companies also made significant contributions to the rise in payouts, while healthcare and pharmaceuticals dragged the totals back a touch.

On an underlying basis, with special dividends factored in, the rise was a more modest 9.5 per cent.

The Capita report also forecast underlying dividends will climb by 7.7 per cent to £84.6 billion for 2017 as a whole, but it expects headline dividend growth to slow through the year to 2.8 per cent as special dividends fall.

Justin Cooper, chief executive of Shareholder Solutions, a part of Capita Asset Services, had a word of caution for investors.

He described the boost to their investment pots as a 'sugar rush' of gains, which would not satisfy them in the long term.

The Capita report also forecast underlying dividends will climb by 7.7 per cent to £84.6 billion for 2017 as a whole.

The Capita report also forecast underlying dividends will climb by 7.7 per cent to £84.6 billion for 2017 as a whole.

'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,' Cooper continued. 'Dividends will benefit in concert, though they tend to lag profit growth by about six months. That bodes well for the top 100, but in the meantime the exciting story rests with the mid-caps.'

'They depend most on the prospects for the domestic economy, while those in the top 100 are more related to global economic trends and the exchange rate.'

 

 

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