Dividends paid by UK companies in 2016 fell to their lowest level in five years as a result of cuts from some of the largest domestic companies in combination with the weak pound.
UK dividends were down 3.5 per cent on a headline basis to $92.9bn (£74.6bn) and fell 2.4 per cent in underlying terms after a number of UK-listed companies cut their dividends and a weak sterling made for an unfavourable exchange rate, according to the latest Henderson Global Dividend Index.
Global dividends did not fare much better as payments were only 0.1 per cent higher on a headline basis, reaching $1.2tr, and underlying growth was 0.6 per cent.
A slowdown in the US, lower special dividends, a stronger dollar and sharp falls in the UK and emerging markets were factors behind the lacklustre dividend payments.
Slower profit growth with companies hoarding cash to boost balance sheets and ongoing weakness in the energy sector meant that US growth slowed progressively last year and headline dividends rose by only 1.5 per cent to $412.5bn.
In Europe dividends expanded by 4.3 per cent on a headline basis to $219.6bn, but with wide divergence across the continent. France, the Netherlands, and Denmark fared the best, while Germany, Switzerland and Italy made modest progress and large cuts from Spanish companies resulted in a sharp decline.
Alex Crooke, head of global equity income at Henderson Global Investors, said that divergence in dividend payments around the world demonstrates the need to take a global approach to investing.
“2016 witnessed a slowdown in the pace of US dividend growth while it accelerated in Europe. Meanwhile, growth was rapid in parts of Asia but poor in the UK. This demonstrates the importance of a global approach to income investing where investors can take advantage of attractive dividend growth opportunities wherever they occur in the world,” Mr Crooke said.
Despite the disappointing figures for 2016, the Henderson report painted a more optimistic picture for 2017 with 3.2 per cent underlying growth and 0.3 per cent headline growth expected with global dividends anticipated to reach $1.2trn.
“For the year ahead, the outlook for global economic growth appears brighter. With a new administration in the White House promising greater spending and tax cuts for business, corporate earnings in the US could benefit, even as they contend with the effects of the strong dollar,” Mr Crooke said.
“Business confidence across the Eurozone is rising too. Meanwhile, higher prices for oil and other commodities will lift profits for these dividend stalwarts, and allow pay-outs in these battered sectors to gradually be restored.”
