UK companies are heading for the highest total of dividends ever paid this year after a record performance in the second quarter, swollen by the lower pound, which increased the value of payments in dollars to British investors, and a healthy flow of special dividends.
Research in the latest Dividend Monitor from Capita Asset Services, part of Capita, the outsourcing specialist, shows that the headline level of dividends during April to June hit £33.3 billion, up 14.5 per cent year on year.
Taking out special payments, the rise in underlying dividends was 12.6 per cent. Of this, almost five percentage points can be accounted for from currency movements as companies such as BP and Royal Dutch Shell and the global miners continued to pay shareholders in dollars. Even stripping this out, though, underlying dividends still increased by 7.8 per cent in the quarter, their fastest rate of growth in two years.
Capita is therefore increasing its estimate for total payments to UK investors this year to £90.3 billion, which would be a 7 per cent increase on 2016.
The last record year for dividends was 2014, which included the massive $24 billion special dividend from Vodafone to its shareholders after the sale of its 45 per cent stake in Verizon Wireless.
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In the second quarter of this year special payouts totalled £4.6 billion, the second highest quarterly figure on record, mainly because of £3.2 billion paid out by National Grid after the sale of its 61 per cent stake in the UK gas distribution network to a consortium of investors. The energy utility is also returning value to those shareholders by means of a share buyback.
Capita says another notable payment in the quarter was the £357 million paid by Lloyds Banking Group, now out of state ownership and able to reward its other investors again, as a special payment on top of the regular dividend which cost £1.2 billion. In all, 20 companies handed over specials, the second highest number in any quarter.
Growth was particularly strong among the global miners, a number of which had to cut payments in earlier years because of the dramatic fall in commodity prices. While the two biggest increases by sector were in utilities and building materials and construction, the amount paid out by the miners almost doubled year on year.
The outlook is not entirely bright. Justin Cooper, chief executive of Shareholder solutions, which is part of Capita Asset Services, said the performance of the economy would determine which companies were still able to deliver strong dividend growth. “The uncertainty over the economy, the Brexit negotiations and the unstable political situation are key factors to watch.”