Dividends jumped to record second-quarter levels earlier this year, helped by a recovering economy and added confidence within markets.
Capita Asset Services’ latest UK Dividend Monitor recorded the largest UK payout of dividends in the three months to June 30 2015.
Special dividends accounted for only £900m of the £29.2bn, however, with the “lion’s share of growth coming through regular dividends, rather than one-off specials” according to Justin Cooper, chief executive of shareholder solutions at Capita.
A number of factors have prompted the increase in dividend payouts, a key component being the resurgence of the banking sector, with dividend payouts in the industry increasing by 33.3 per cent.
Lloyds Bank was a principal driver, with a £595m payout – its first since the fourth quarter of 2008.
Unlike those in most countries, the UK’s largest companies benefited from improved currency conditions, according to the research, as the pound devalued by roughly 9 per cent against the dollar compared with the same period 12 months ago.
This helped to boost the second-quarter payouts by approximately £800m.
On top of both increasing dividends from the financial sector and improving export prospects, consumers are playing their part by increasing spending levels, with headline growth up 11.7 per cent. Housebuilding and beverage companies in particular have seen the increased consumer spending boost their growth figures.
Following the most recent data, Capita has raised its forecast for full-year dividends by £600m to £87.2bn. Underlying dividends look set to reach £84.8bn, which would represent a 7.3 per cent year-on-year increase, making it the fastest rise since 2012 and a new record.
But although forecasts seem positive, Jamie Forbes-Wilson, manager of the Axa Framlington Blue Chip Equity Income fund, is slightly more sceptical.
He warns: “The outlook for UK dividends has deteriorated in recent weeks.” Citing several factors, Mr Forbes-Wilson suggests that the “large proportion of dollar-denominated dividends paid in the UK has meant that currency movements have reduced the quantum of payments”.
In addition, he believes that high-profile dividend cuts from companies such as Centrica and Sainsbury’s will “have reduced the expected rate of dividend growth for the market in the period ahead”.
That said, the research from Capita shows mid-cap stocks continued “to tap into strong domestic economic growth”, posting a dividend increase of 26.1 per cent to £3.8bn, making the second quarter of 2015 the fastest rate of dividend growth in any quarter since 2010 and the fifth consecutive quarter of accelerating growth.
Kully Samra, managing director of Charles Schwab UK, attributes the increased growth in the sector overall to investors moving money away from traditional accounts and into stocks to attain larger yields – a trend that he does not see changing in the next few quarters.
Michael Georgiou is a freelance writer studying combined social sciences at Durham University
