Mining company payouts have driven a turnaround in underlying UK dividend growth in the second quarter, prompting Capita to upgrade its forecasts for the year ahead.
The quarterly UK Dividend Monitor report from Capita Asset Services showed dividends in the three months to June 30 hit £33.3bn – a record for the second quarter of the year.
Underlying dividends were £28.6bn, a rise of 12.6 per cent from 2016. Capita said that special payouts – the second highest on record at £4.6bn – had boosted the overall levels of dividends, and added there were also signs of strong underlying growth.
The growth has prompted a more positive tone from the forecaster, which had warned last October that underlying growth remained weak despite sterling's slump boosting headline payouts.
Stripping out currency effects, year-on-year underlying dividend growth in the second quarter stood at 7.8 per cent.
Capita said underlying growth was focused on a “resurgent” mining sector. Every company in the sector raised its dividend this year, though Capita acknowledged that giants Glencore and Rio Tinto remained responsible for a large proportion of the total. Total dividends from resource and commodities stocks were 73 per cent higher than in Q2 2016, the report showed.
The dividend increases come after an improvement in fortunes for commodities company share prices. The FTSE All-Share Metals and Mining index is up 86 per cent over one year, versus 16 per cent for the conventional All-Share index.
Capita now predicts overall payments will hit £90.6bn over 2017 as a whole – a 7 per cent rise from 2016 and well above the previous record of £88.1bn in 2014 that was achieved with the help of Vodafone's bumper special dividend..
In January Capita had predicted payouts of £87.1bn for this year.
The 2017 forecast for underlying dividends has actually fallen since the end of Q1 – owing to Sky cancelling its payout following Fox’s takeover attempt. The firm had predicted £84.6bn in underlying dividends at the end of Q1 but has now reduced this by £200m. Capita said underlying dividends would still rise 7.4 per cent in 2017, and by 4.3 per cent were the impact of sterling weakness removed.
However, the report added: “The second half of 2017 will show weaker growth than the first...mainly because exchange rate gains are set to disappear.”
Justin Cooper, chief executive of Capita Shareholder Solutions, said that while “punchy” special dividends and a weak sterling had boosted investor income, improving profits had also played their part.
But he added: “Most of the excitement for 2017 is now behind us. As we move towards 2018, the extent to which the weakening UK economy continues to diverge from improving trends elsewhere in the world will determine which companies are still able to deliver strong dividend growth. The uncertainty over the economy, the Brexit negotiations, and the unstable political situation are key factors to watch.
"Even though the second half is going to be much quieter, investors can look forward to dividends hitting a new record this year."