Record UK dividends not all good news for income investors
There's been a growing trend among UK companies, and everything is not what it seems.
18th April 2019 10:51
by Tom Bailey from interactive investor
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There has been a growing trend among UK companies, and everything is not what it seems. Tom Bailey explains.
UK dividend payments reached a new high in the first quarter of 2019, according to Link Asset Services' Dividend Monitor.
The total amount paid by UK companies rose to £19.7 billion, representing a growth of 15.7% and the highest first quarter figure on record.
Driving this boost in dividends was a large one-off special dividend, paid by mining giant BHP Group (LSE:BHP). In the first quarter of the year, the company paid out a special dividend totalling £1.7 billion – proceeds from selling its US share oil interests.
As we have covered before, there has been a growing trend among UK companies to pay special dividends. In 2018, over 10% of firms on the FTSE 100 made special dividend payments, totalling around £6 billion. This was the highest figure ever paid in special dividends.
Headline dividend payments – that is, dividends including such one-off special payments – are now forecast at £106.1 billion in 2019. That would be the first time the UK has breached the £100 billion barrier, representing 6.3% growth from the previous year.
However, once special dividend are stripped out, the figure becomes less impressive. Excluding special dividends in the first quarter leaves a growth figure of 5.5%, weaker than had been expected from larger and smaller companies.
At the same time, underlying dividend payment expectations for the year stand at £99.7 billion. While still a record, that would give a year-on-year growth figure of 3.9%.
Underlying growth, it should be noted, was also largely driven by currency movements. Both oil and pharmaceuticals were the largest paying sectors, collectively accounting for almost two fifths of the first quarter underlying dividend growth.
However, as Link Asset Services points out, growth in these two sectors was almost entirely due to positive exchange-rate effects.
After both exchange rates effects and special dividends are removed, the top 100 dividend payers rose 2.6%.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.