Worst quarter in three years for UK dividends
UK dividend payouts have plummeted to their lowest level in three years as storm clouds gather over the global economy.
Underlying dividends paid out to shareholders by UK firms tumbled almost three per cent in the third quarter on a constant currency basis – independent of foreign currency movements – the worst quarterly performance in three years.
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Although UK dividends overall rose 6.9 per cent to £35.5bn during the period, this figure was boosted by exceptionally large special dividends and exchange rate gains, according to a report by Link Group.
With special dividends and currency fluctuations discounted, dividends paid out dropped almost three per cent. Telecoms was the worst-hit sector, with payouts tumbling 40 per cent, led by Vodafone, which slashed its dividend by three fifths.
Other high street stalwarts including Marks & Spencer and Dixons Carphone also made cuts to their dividends during the third quarter.
Stock market growth has been dampened in recent months as the escalating trade war and a global economic slowdown combined with an intensifying political crisis in the UK have weighed on investor sentiment.
Some sectors did deliver double-digit growth, but this was spurred on by special dividends. Banking jumped by two fifths during the period, led by payouts from RBS, while mining increased almost a third, driven by payouts from Rio Tinto and BHP.
“The predicted economic slowdown is beginning to show as UK plc payouts falter after years of solid growth despite the gloss of huge special dividends and eye catching foreign exchange effects,” said Link chief operating officer Michael Kempe.
“As the world economy falters and the UK remains mired in its political crisis,” he continued, “we are witnessing a significant slowdown in UK plc’s dividend growth rate. This is inevitable given the increasingly lacklustre performance companies are putting in on earnings.”
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Excluding special dividends, UK shares will yield 4.4 per cent over the next 12 months, Link said.
The company is forecasting that underlying dividends will rise 3.3 per cent to £99.1bn by the end of the year – almost nine tenths of which will be down to exchange-rate gains. Link is forecasting total dividend payments of £110.bn for 2019, and is predicting the second-highest special dividends on record.