UK dividend growth stalls in third quarter

This article is part of
Hunt for Income - November 2014

Dividends in the UK have been on the up in recent years, but latest figures from the Capita Asset Services’ UK Dividend Monitor show that in the third quarter of the year, this trend has started to stall.

For the three months to September 30 2014, headline dividends rose by just 0.2 per cent year on year, totalling £25.5bn.

This sounds a significant amount but given £1.1bn of that was from special dividends, of which £500m alone came from Intercontinental Hotels, the figures look much grimmer.

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Capita notes the third quarter recorded a 2.9 per cent decline in underlying dividends, and as a result it has downgraded its full-year forecast for 2014 from £98.5bn to £97.1bn.

These figures are a long way from the original estimates at the start of the year that dividends could exceed the £100bn mark.

Justin Cooper, chief executive of Shareholder Solutions, part of Capita, explains: “Much of it is due to global factors that have overshadowed the strong recovery the UK economy is enjoying.

“FTSE 250 firms are winning the race as a result, with these domestically exposed companies boasting much stronger growth.

“However, their dividend pool is too small for the big fish among investors, who need to retain significant exposure to the large-cap firms that are doing less well at present.”

That said, Capita is predicting a slight improvement in 2015, with a preliminary forecast of headline dividends of £85.8bn for the year, as sterling should be “less of a drag”.

But while UK dividends have struggled, global equity income has fared better. The IMA Global Equity Income sector has delivered a return of 3.26 per cent for the year to date to October 29, outperforming its IMA Global sector peers in addition to the UK Equity & Bond Income, UK Equity Income and UK All Companies sectors.

In terms of global dividends, surprisingly it was Europe which delivered the highest figures, accounting for $2 (£1.25) in every $5 paid out in the second quarter of the year, according to the third Henderson Global Dividend Index.

The region produced $153.4bn of dividends in the three months, with the total global dividends paid out in the second quarter reaching $378.7bn.

But while Europe excluding UK accounts for 40 per cent of global dividends, the emerging markets sector is starting to expand its share with roughly 8 per cent. This is only just behind the 9 per cent share held by the UK and 10 per cent from Asia Pacific.

While the focus is almost always on the UK and the difficulties in finding reliable and stable income streams that outside of the top-15 companies, it seems it could pay to take a broader view of the world.

Nyree Stewart is features editor at Investment Adviser