Watch the dividend

1st May 2016

Dividend growth is slowing in the UK

Shortly after the end of each quarter, Capita, one of the UK’s largest share registrars, publishes a dividend monitor. This gives a useful snapshot of the dividend payments from UK-listed companies over the previous three months. The latest edition, covering the first quarter of 2016, makes interesting reading if you are an investor in UK equity income funds:

  • Year-on-year dividends rose 6.4%, but this was largely due to some generous special (one-off) dividend payments. Strip these out and underlying dividends grew by just 1.3%, pretty much in line with RPI inflation.
  • The small positive growth in dividends was entirely due to the weakness of sterling against the US dollar, which Capita reckons accounted for £350m of the quarter’s £14,200m in dividend payments. Many of the FTSE 100’s largest companies, such as Shell, HSBC and Astra Zeneca, use the dollar as their accounting (and dividend) currency.
  • During the first three months of 2016 dividend cuts of £2,700m were announced, but most of these will not bite until later in the year.
  • The top five dividend payers in the UK accounted for 53% of the total dividends paid in the first quarter.
  • Following its takeover of BG Group, Shell will deliver over £10bn of dividends in 2016 – nearly 13% of the total payout projected by Capita.

The concentration of dividend payments, currency volatility and dividend cuts from major companies (e.g. Tesco, Rolls Royce) is making life hard for managers of UK equity income funds. If you have holdings in this popular sector, it makes sense to review them now.

The value of your investment can do down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Related Articles

Making a Will during COVID-19

Thinking about how well we are prepared for our futures As coronavirus (COVID-19) leaves many of us working from home surrounded by our families and loved ones, it is inevitable that we start to think about how well we are prepared for our futures.

Read more

'Future self'

Boosting future retirement savings Young people are faced with a unique set of challenges when it comes to saving for retirement. One of these is perception. They can often think of their ‘future self’ as a different person and so may prefer holding on to their income for more immediate priorities, like a first home deposit, rather than saving for someone they perceive as a stranger.

Read more

State Pension age rises

How could the change impact on your retirement plans? For the first time in over a decade, the point at which people can claim a State Pension (the ‘State Pension Age’) is simple. If you have reached your 66th birthday, you can claim it. Otherwise you cannot.

Read more