Shell’s divi dominance underlines yield conundrum

Shell’s divi dominance underlines yield conundrum

Headline UK dividend payouts will depend on a single company this year to an extent not seen for more than a decade, highlighting concentration risks for UK equity income investors.

According to Capita UK Dividend Monitor, Shell will account for £1 in every £7.50 paid out in UK dividends this year, up from £1 in every £10 last year.

Excluding special dividends, the figure represents the highest proportion attributable to a single company in the report’s 10-year history.

The increase in Shell’s payout, which stems from its takeover of BG Group and beneficial currency effects, comes despite the dividend being viewed with increasing concern by investors – as indicated by the company trading on a yield of almost 8 per cent.

Capita’s latest quarterly report predicted the FTSE All-Share index would yield 3.6 per cent this year, but added this figure would drop to 3.3 per cent in the absence of Shell’s £10.4bn payment.

However, it said: “With Shell’s growing dominance, risks have also concentrated, though we continue to discount speculation from some commentators that the company will cut its dividend in 2017.”

Since 2007, only Vodafone has accounted for a greater proportion of payouts – though this was as a result of the special dividend paid following its disposal of Verizon Wireless.

On a headline basis, the previous record was held by BP, which accounted for £1 in every £7.87 in 2009. It cut its dividend a year later after the Deepwater Horizon oil spill.