Dividend payments broke all records in the first three months of this year, up 120% on the same period in 2013, to an incredible £31 billion. Boosted by a special dividend payment from Vodafone the Dividend Monitor Report from Capita Registrars estimated that UK companies will pay out a total of £100 billion in dividends this year – a record pay-out for domestic stocks, smashing the previous high of £81 billion paid out in 2012.
But the latest Dividend Report disappointed – UK companies paid out 2.9% less in the three months to the end of September compared to the same period in 2013. If you include the £1.1 billion of special dividends paid out in this period the figure is a more acceptable rise of 0.1% - but it still disappoints.
The lacklustre payouts have forces Capita to downgrade its predictions for the year – with underlying dividends expected to reach just £79 billion, an annual increase of just 1.7%. These should be boosted to £97 billion by special dividend payments, including the £16 billion special dividend issued by Vodafone earlier this year.
Capita has predicted that 2015 should show significant improvements in the underlying payouts however, thanks to a stronger pound.
“The effects of a strong pound, weak corporate earnings, and a sluggish global economy have caused the slowdown in dividends this year. Roughly two fifths of the UK’s annual dividends are declared in US dollars,” reads the report.
“The pound has now begun to fall against the US dollar, though it remains strong against the euro. The current rate, if it persists, is low enough to provide a boost to dividends next year, but only a small one.”
It is the largest companies who have been worst hit by the sterling weakness as it is those who rely most on international revenues. In comparison, mid sized companies saw a 7.6% increase in dividend payments.
“FTSE250 firms are winning the race, with these domestically exposed firms boasting much stronger growth. However, their dividend pool is too small for the big fish among investors, who need to retain significant exposure to the large cap firms which are doing less well at present,” said Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services.
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