Dividend payouts have risen 14.5% over the past year – with payouts in the second quarter of 2017 hitting £33.3 billion, an all-time high. Much of the increase down to sterling weakness as many stocks in the FTSE declare in US dollars. Around one third of dividends declared March to June were in dollars. Although sterling has rallied year to date, the pound is still down against the dollar compared to this time last year.
However, even stripping out the currency boost, underlying dividends rose by 7.8% compared to the same three months in 2016, thanks to increased payouts from mining stocks, consumer goods companies and even financials. According to the latest Dividend Monitor from Capita Asset Services, 12 sectors out of 17 paid more in Q2 this year than last.
Special Divis Provide Boost
There were £4.6 billion of special dividends in Q2, the second-highest three months on record. Shareholders in National Grid (NG.) were the main beneficiaries, with the utility company paying out a one-off £3.2 billion dividend on the sale of its UK gas distribution business to the Quad Gas Group consortium.
Mining Stocks Up Dividends
Despite a fall in commodity prices year to date, every company in the mining sector upped their dividends in the second quarter, with Glencore (GLEN) and Rio Tinto (RIO) leading the way. Glencore paid a dividend for the first time since 2015, when it had cancelled them as the oil price halved and commodity prices tanked. It paid out a total of £390 million according to Capita – 10% more than expected.
However, Morningstar equity analyst Mathew Hodge remains concerned about the sector, assigning no economic moat to either stock. “Glencore’s industrial assets account for the bulk of group operating profit and lack cost advantage, while overinvestment through the commodities boom destroyed Rio Tinto’s excess returns,” he said.
The Capita Report states that at the underlying level, which excludes special dividends, resources companies accounted for £1.1 billion out of the total £2.6 billion year-on-year increase.
Financials Increase Payout – Slightly
The largest dividends came from financials, totaling £10.3 billion, but they grew more slowly than the average company pay-out and insurance dividends fell year-on-year. Insurance companies Old Mutual (OML) and Admiral (ADM) cut their dividend, while investor favourite Lloyds (LLOY) increased its pay-out as expected. HSBC (HSBA) shareholders experienced a boost in payments thanks to the weak pound, although the bank kept payouts flat.
Justin Cooper, Chief Executive of Shareholder solutions, part of Capita Asset Services said: “Shareholders can be thankful they had punchy special dividends and the weak pound in their corner, but improving profits have also played their part. The relative strength of the UK consumer, until recently at least, and surging economic growth abroad has supported stronger dividend growth than we have seen in some time. Even though the second half is going to be much quieter, investors can look forward to dividends hitting a new record this year.”
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