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FTSE 100's Dividend Yield Passes 4%

Dividends in the first quarter of 2018 grew 7.6% on a headline basis, but sterling strength trimmed underlying payouts

David Brenchley 23 April, 2018 | 1:49PM

Shell Dividend Restored

The yield from FTSE 100 companies rose to above 4% in the first quarter of 2018 as share prices in the unloved UK stock market continued to fall, the Link Asset Service’s UK Dividend Monitor shows.

The percentage yield from the UK’s blue chips rose 8% from 3.7% to a touch over 4%, while the FTSE 250’s ticked up 10 basis points to 2.7%. The yield of the overall market edged up 11% to 3.9%.

Dividend payments for the first three months of this year – historically the weakest quarter for payouts – rose 7.6% on a headline basis to £16.7 billion. But that number was boosted by timing changes, without which we’d have seen a more modest 1.2% rise.

The underlying total, which excludes special dividends, fell 0.1% due to recent sterling strength against the US dollar. This trend looks like continuing, meaning we’re likely to have a more subdued year, after 2017’s “knockout” growth rate.

While the pound remained rangebound against the euro, a far larger proportion of dividends are paid in US dollars than European currencies, meaning FX will turn into a headwind in 2018.

The biggest impact this had was on the oil and healthcare sectors. Despite a boost from the scrapping of Shell’s (RDSB) scrip programme and the neutralisation of BP’s (BP.), oil dividends declined 15% year-on-year. AstraZeneca’s (AZN) was also affected as it pays in dollars, meaning healthcare payouts were 6% lower.

One-Offs Helped FTSE 100 and Hindered FTSE 250

Investors were also urged to look beyond the headline figures. While payouts from the top 100 companies jumped 9.2% year-on-year, they were artificially boosted by one-off factors. In contrast, while the mid-cap index’s payouts fell by 10.8%, that was mainly due to the takeovers of Aberdeen Asset Management and Amec by Standard Life (SLA) and Wood Group (WG.) respectively.

Online gambling group GVC (GVC) also delayed its payment, affecting the FTSE 250’s returns. The wider mid-cap cohort saw healthy growth of 5.2%.

British American Tobacco’s (BATS) acquisition of US counterpart Reynolds, which was completed in Q1, flattered the numbers, as the cigarette maker moved to a quarterly payment and added £1 billion to the total.

This and Persimmon’s (PSN) bumper return helped the consumer goods & housebuilding sector double its dividends year-on-year. Miners saw payouts rise two-thirds thanks to BHP Billiton (BLT) and Evraz (EVR).

Meanwhile, special dividends more than doubled year-on-year, thanks to Sky’s (SKY) pre-takeover special.

Headline dividends for the full year are now expected to be £96.3 billion, up 1.8% year-on-year, thanks to a slightly higher forecast for specials.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC7,225.00 GBX1.38
BHP Group PLC1,783.00 GBX-0.54
BP PLC520.90 GBX0.77
British American Tobacco PLC2,916.00 GBX-1.54
EVRAZ PLC488.00 GBX-0.55
GVC Holdings PLC728.00 GBX0.22
HSBC Holdings PLC616.30 GBX0.05
Persimmon PLC2,109.00 GBX3.89
Royal Dutch Shell PLC B2,349.50 GBX0.09
Standard Life Aberdeen PLC278.50 GBX1.20
Wood Group (John) PLC417.20 GBX-2.18

About Author

David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk

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