THE latest dividend monitor from Link Asset Services has revealed that UK dividends increased 7.1 per cent to a record £30.7 billion on an underlying basis.
Soaring mining dividends and a weaker-than-expected drag from exchange rates help explain the impressive figures, though growth was broadly spread across a wide range of sectors, according to the monitor.
In the first headline decline since Q1 in 2015, the total fell 2.1% to £32.6bn as the “exceptionally large specials paid in the second quarter of 2017 were not repeated”.
Headline payouts, however, leapt 95%, up £2.3bn and driven by Glencore, Rio Tinto, Anglo American, and Mondi. Together they paid out over £1.9bn more than in Q2 last year, and accounted for the lion’s share of the overall dividend growth from UK plc year-on-year.
Among the other larger sectors, the strongest performance came from insurers, where rising profits boosted payouts from nine-tenths of the companies in the sector. Aviva increased its payout by almost one-fifth and promised a share buyback in a bid to deploy part of a surplus cash pile of £2bn.
Overall, three-quarters of sectors raised their payouts. Dividends from the banks and oil companies fell slightly, mainly due to exchange-rate factors which weighed on dividends from Shell, BP and HSBC that have failed to grow for three years in dollar terms.
Link has increased its forecast for underlying growth from 2.9% to 6.9%, bringing a total of £94.1bn for the full year (excluding special dividends). A little over half the increase in the forecast reflects the weaker pound.
Justin Cooper, chief executive of Link Market Services, part of Link Asset Services, said that “UK plc’s profitability is on a firmer footing, and though there are still points of weakness, overall, profits now comfortably cover dividends”.
“Balance sheets are also getting stronger,” said Mr Cooper. “This is giving companies more headroom to return cash to shareholders.
“The miners really stand out, boosted by the recovery in commodity prices after several years of pain for companies in the sector. Many mining companies have adopted dividend policies that link payouts more explicitly to volatile profits, so we can expect their dividends to be much less predictable than in the past.”
Mr Cooper added: “The miners might be digging deepest, but the rest of UK plc is coming up with the dividend goods too. Three-quarters of sectors saw growth on the back of improving profits, and income investors are set for another record year in 2018.”
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