22nd April 2013
UK income investors have taken a hit since the start of the year as dividends paid out by London listed companies plummeted by some 25% over the first three months compared to the same period in 2012 writes Philip Scott.
According to Capita Registrars, a share registration provider, over the first quarter of 2013, dividend payouts, payments made by companies to shareholder members, totalled £14.1bn, down from £18.8bn in 2012.
But in its latest Dividend Moniter report, Capita points out that the figures may not be as bad as they initially appear, as companies refrained from delivering ‘special’ one-off payouts. In 2012, special one-off dividends payments were bestowed on investors from heavyweights Vodafone and oil explorer Cairn Energy, which bolstered last year’s figure by £4.4bn.
In fact, by adjusting for all one-off payouts, underlying dividends actually crept up by 6.1%. Capita Registrars, chief executive, Justin Cooper, said: “There is a modest slowdown in underlying dividend growth underway but that 6.1% should not be considered a poor performance. Special dividends in particular are unpredictable so it is quite possible that headline payouts may fail to top the 2012 total.
But this is not a rout. Dividends have played catch up over the last two years, and while we do still expect healthy growth, it will be at levels more consistent with the performance in company profits. Dividends cannot continue to outstrip profit growth indefinitely.”
The report found during the period, taking one-off payments into account, the oil and gas sector delivered the most robust underlying growth while the pharmaceutical and small technology sectors were the weakest.
Overall 105 firms upped, commenced or re-instated dividends compared to 22 who slashed or cancelled them. The FTSE 100 index of the UK’s largest firms paid out £13.1bn, representing a heavy drop of 25.9% since the same period last year while the FTSE 250 index, paid out £765m, a fall of 16.2%.
Cooper added: “Investors, particularly institutional ones, value predictability when it comes to dividends, as they have liabilities to meet, but so do those private investors who live off the income from their investments.”
Capita’s forecast for 2013 is for headline dividends of £80.5bn, flat compared to the £80.4bn in 2012. The forecast includes an estimate of £1.9bn for special dividends, much more in line with a typical year, and less than a third of the £6.8bn in 2012, notes the report.
It highlights that insurer, Standard Life, has announced a £340m gross special dividend to be paid in the second quarter. But Capita warns that it sees potential downside risk in its forecast, especially in regards to the unpredictability of special dividends.