UK plc dividend growth set to improve in 2015 despite the absence of any bumper Vodafone-size payouts

15th December 2014

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Take away Vodafone’s special £15.9bn payout earlier this year and it becomes clear that the past 12 months are far from covered in glory in terms of dividend growth.

In fact according to the latest Capita Asset Services UK Dividend Monitor, payouts rose just 1.7% over the period.

By year-end dividend payouts will have fallen in real terms, reaching £79.3bn on an underlying basis as investors have been hard hit by the challenging conditions facing listed companies.

But despite the sluggish global growth and weak corporate earnings that have coloured more recent times, Capita forecasts that total headline dividends in 2015 will jump to £85.8bn, a decline of 11.7% from the 2014 headline total, which includes Vodafone’s bumper payday, of £97.1bn.

Justin Cooper, CEO of Shareholder Solutions at Capita Asset Services said: “However, if we look beyond this one-off {Vodafone} payout, the underlying picture is much better. We expect dividends to grow by 5.5% in 2015, to a total of £83.7bn.”

The choppy waters have been caused by sluggish global growth and weak corporate earnings, which have hindered the biggest-payers the most.

In addition the strong pound has also compounded the issue, presenting a major headwind for payouts to UK investors. The currency conversion has been a painful experience for those investing in the FTSE’s biggest, most globally exposed, companies, knocking £3.5bn off dividends this year concluded the report.

Cooper said: “Looking ahead to next year, the strength of sterling is unlikely to be quite such an issue. The dollar is growing in strength, which bodes well for those reporting in the US currency. A return to significant growth for the US economy is also leading a global recovery, which, when combined with ongoing resilience in the UK economy, will help improve dividend payouts.”

However clouds remain on the horizon for income investors. For example, oil has fallen to a five year low, and seems set to stay low for some time.

“Commodities companies, and specifically oil and gas giants, are traditionally dividend heavyweights in the UK, accounting for almost 13% of payouts across the market, so if their profits take a battering, they will find it harder to grow their dividends. We would not expect them to cut payouts in dollar terms however,” added Cooper.

 

 

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