Dividends paid by UK companies are expected to grow by more than expected following a record figure in the second quarter (Q2).
Mining firms and weaker exchange rates saw £30.7 billion (€34.5 billion) paid to dividend investors on an underlying basis after a 7.1% surge in Q2, according to Link Asset Services.
Earlier this year Link predicted a slowdown in dividends but has now “significantly” increased its forecast for underlying dividend growth from 2.9% to 6.9% this year.
This would mean a total of £94.1 billion in underlying dividends (which excludes one-off special payments) will be paid out this year. Just over half of the increase is due to the weaker pound.
On a headline basis – which includes specials – Q2 dividends in fact fell by 2.1% to £32.6 billion and this was the first headline decline since Q1 2015, but Link noted that specials in Q2 2017 had been “exceptionally large”.
Justin Cooper, chief executive of Link’s market services business, said: “UK plc’s profitability is on a firmer footing, and though there are still points of weakness, overall, profits now comfortably cover dividends. Balance sheets are also getting stronger. This is giving companies more headroom to return cash to shareholders.”
Fund manager Robin Geffen, of Neptune Investment Management, recently warned of “astonishing risk” in the Investment Association UK Equity Income Sector, saying too many income managers were loading up on the same handful of stocks to produce yields.
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