Another Dividend Record

The demise of sterling after last year’s referendum result is now beginning to fade from annual comparative figures. For example, against the euro, sterling is now down just 0.3% over the last 12 months, while it has appreciated by 7.6% against the US dollar. It might have been expected that the pound’s performance, particularly against the dollar, would impact on the rapid dividend growth UK shares had been recording this year. However, the latest Capita quarterly dividend monitor suggests that solid dividend growth has continued into the third quarter of 2017, with – as in the second quarter – a helping hand from one-off payments.

According to Capita:
• The latest figures show UK dividend payments rose to a new record for the third quarter of £28.5bn, up 14.3% over the previous year – an almost identical increase to Q2.
• Special dividends were up 40% year-on-year to £1.5bn. Compass Group was the main contributor, with a £960m payout.
• Capita reckons that growth in underlying dividends (ie excluding the one-off specials) was 13.2% year-on-year. Strip out the currency effect and underlying growth is barely changed at 12.9%, the fastest in any quarter since 2012.
• 12 sectors raised dividends, while in 7 there was a fall, the same mix as in Q2. The mining sector continued its bounce back, accounting for two-thirds (£2.4bn) of the total dividend increase.
• Financial companies remain the largest dividend payers, accounting for 16.3% of total payments. However, their dividend growth was only 1% in Q3, almost entirely driven by Lloyds. The next highest payers were oil, gas and energy companies, many of which declare dividends in US Dollars. Dividend growth in this group was 4%.
• Payouts from the top 100 companies rose 14.5% year-on-year, while the more UK-focused mid 250 registered a 12.2% increase.
• Concentration of dividend payments remains an issue. Capita says the top five companies account for 34% of all dividends (against 36% a year ago), while the top 15 covered 64% (cf 65%). The biggest payer was Royal Dutch Shell, whose 47c a share dividend has been unchanged since June 2014. The next three – Vodafone, HSBC and BP – have all inhabited the top four Q3 dividend places since 2012. BAT came in at number five, a slot occupied last year by SAB Miller (which has since been taken over by AB Inbev).

In its Q2 report, Capita expected the end of the Brexit currency boost to bring down annual underlying dividend growth to 7.4% in 2017. With the strong showing in Q3, Capita has now upped its forecast to 11.1%.