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Surging growth in Q2 keeps UK dividends on track for record year

UK plc’s profitability is on a firmer footing at present. There are still points of weakness, particularly in sectors undergoing severe structural change, such as retail, but overall, profits now comfortably cover dividends.

The latest Link Asset Services UK Dividend Monitor reveals that in Q2:

  • Underlying dividends (excluding specials) surged 7.1% to record of £30.7bn
  • Headline dividends dropped 2.1% year-on-year to £32.6bn owing to sharply lower special dividends compared to last year
  • Mining dividends jumped 95% year-on-year, accounting for most of the increase in UK plc dividends year-on-year; insurers also made a significant contribution to growth
  • Equities continue to provide the highest income; the overall UK yield held steady at 3.9% Headline growth forecast raised to 3.2% bringing the total to £97.8bn for 2018, a new record.

The Link Asset Services UK Dividend Monitor is a quarterly publication providing comprehensive data, trends and analysis on dividends paid out on the ordinary shares of companies listed on the UK Main Market.

Sectors

Mining iconHeadline payouts jumped 95% (underlying +82%), up £2.3bn, driven sharply higher by Glencore, Rio Tinto, Anglo American, and Mondi, the last of these in the form of a special.

InsuranceiconAmong the other larger sectors, the strongest performance came from insurers, where rising profits boosted payouts from nine-tenths of the companies in the sector. Insurance dividends jumped 23%.

WorldMapDividends from the banks and oil companies fell slightly, mainly due to exchange-rate factors which weighed on dividends from Shell, BP and HSBC which have failed to grow for three years in dollar terms.

FTSE 100 v FTSE 250

Q2 share of UK DividendsTop 100 dividends fell 3.9% year-on-year in the second quarter to £27.3bn. This was mainly due to the big special dividend National Grid paid last year, though exchange-rate effects and the timing change at BAT also played a role.

In contrast, mid-cap payouts rose 6.4% to £4.3bn, boosted by higher special dividends.

Outlook

Mining iconThe pound has weakened again, reducing the exchange rate drag for the year. In the second half, there is set to be almost no effect at all if the pound maintains its current rate.

Arrowicon


We have increased our forecast for underlying growth significantly from 2.9% to 6.9%, bringing a total of £94.1bn for the full year.

GraphIconSpecial dividends are likely to be lower than our initial estimate, taking the new headline dividend forecast up to £97.8bn, an increase of 3.2% year-on-year and a new all-time record.

With grateful thanks to Exchange Data International for providing the raw data.