20th April 2015
Despite poor headline figures shareholders payouts from UK firms have enjoyed a decent start to 2015 spurring on analysts to up their expectations for the year.
According to the widely observed UK Dividend Monitor from Capita Asset Services headline dividends in the first three months of 2015 totaled £14.75bn, marking a heavy 52%.
But at the underlying level, which strips out special dividends, the total reached £14.49bn, down 0.3% year on year.
The decline is down to two factors, namely Vodafone paid its world record £15.9bn special dividend in the first quarter of 2014, distorting year-on-year comparisons at a headline level. Equally, the reduction in size of Vodafone since the disposal of Verizon has reduced the total the company paid out in the first quarter of this year by £840m.
Capita highlighted too that Barclays delayed the payment of its final dividend by five days, shifting £630m of first quarter dividends into the following three-month period. At almost £1.5bn, the combined effect of these two payments is over a tenth of the first quarter total.
Adjusting for these factors, the figures are much more positive for investors with the latest quarter seeing the fastest growth rate in almost three years, up 10.4% year on year before special dividends.
Dollar strength has helped too after rising by 12% against the pound, compared to a year earlier. With 53 companies in the FTSE 350 reporting in dollars, and denominating their dividends in that currency, the exchange rate effect is a significant one for investors to consider, and will boost 2015 payouts.
As a result of strength in the FTSE 250, faster than expected underlying growth in the first quarter, and return of Lloyds Bank’s dividend, Capita has increased its 2015 forecast to £86.5bn, up from £86.1bn. On an underlying basis, Capita has revised its forecast up by £500m, with dividends forecast to reach £84.1bn. If this total is achieved, the rate of growth for 2015 of 6.4% will be the highest since 2012
Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services said: “2015 is off to a flying start for income investors, boding well for the full year. At last we will see strong growth this year, after a disappointing couple of years for dividend growth. Yes, the quarter pales in comparison to a year ago at a headline level, when Vodafone paid a world record dividend following its Verizon stake sale. But under the surface, things are clearly picking up pace.
“Challenges remain, not least in the supermarket sector, where the payouts are vulnerable. Shareholders are bearing the cost of the sector’s price war. Tesco’s cuts could cost investors up to £1bn. But the reinstatement of Lloyds Bank’s dividend will give investors optimism, marking a milestone for the recovery of the market.”