INVESTORS in UK equities enjoyed a 16.2 per cent increase in ordinary dividends during the first quarter of 2017 although a decline in special dividends in the period meant the overall rise was just 9.5 per cent, writes Margaret Taylor.

According to Capita Asset Services’ latest Dividend Monitor, total dividends were up from £14.1 billion in the first quarter of 2016 to £15.4bn in the first three months of this year.

However, at £15.3bn the bulk of the sum came from ordinary dividends, with special payments having their weakest quarter in six years, falling by 90 per cent to £110 million. The fall was twice as large as Capita had been anticipating.

Justin Cooper, chief executive of Capita’s Shareholder Solutions, said growth in dividends is unlikely to be sustained, with much of the rise down to the weakness of sterling enhancing dollar-based payments while BHP Billiton, which paid substantially more than was expected, further skewing the figures.

“UK plc delivered a record for a first quarter, at least before the big drop in special dividends was accounted for, but the sugar rush of exchange rate gains won’t leave investors feeling satisfied for long,” Mr Cooper said.

“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.”

Mr Cooper said that the companies that make up the FTSE 100 had benefitted most from exchange rate gains, with 90 per cent of the increase in their dividends attributable to sterling’s weakness. Conversely, as nine-tenths of mid-cap companies’ dividends are declared in sterling they were not so affected by exchange rates, making their 11.1 per cent dividend growth more sustainable.

In total 11 out of 17 sectors paid out more in dividends in the first quarter than they did in the same period last year, with oil, gas and energy, resources and commodities, consumer goods and housebuilding, and telecoms performing best.

At the opposite end of the spectrum retail and consumer services and healthcare and pharmaceuticals fell, mainly as a result of lower special dividends.