UK dividends trailing behind global competitors

Added 22nd August 2016

The United Kingdom’s dividends lagged behind its G7 industrialised peers in the second quarter as the effects from weaker profits and a flailing post-Brexit pound severely hampered pay-outs.

UK dividends trailing behind global competitors

The Henderson Global Dividend Index revealed UK dividends had dropped by 3.3% in underlying terms from the previous year, bringing total dividends to $33.7bn. 

Steep cuts made during the period by a swathe of heavyweight, UK-listed companies like Standard Chartered, Anglo American, Barclays and WM Morrison helped to drag the UK’s dividend growth rate down relative to its peers.

While this may be bad news for UK-biased investors, Alex Crooke, head of global equity income at Henderson, asserted global investors have other options.

“For overseas investors, that means UK dividends will be worth sharply less, though with many of the UK’s largest companies paying their dividends in dollars, the impact will be less severe than the pound’s devaluation might suggest. What is more, UK dividends only make up 10% of the global total, so global investors need not be too concerned about their overall portfolio.

“For UK-based investors, of course, the much weaker pound means dividend income coming from abroad is suddenly worth a lot more,” Crooke stated. “Looking globally for income has not only provided UK investors with the opportunity to invest from a larger selection of companies with faster growing dividends than the UK can muster at present, it has also protected them in the short term from the impact of the Brexit vote.”

From a global perspective, dividends rose by 1.2% year on year to $421.6bn, an increase of $9.7bn, albeit still lower than last year’s global dividend growth pace of 3.1%.  

Meanwhile, the story in Europe was one of “broad-based, encouraging growth,” as summarised by Henderson.

The region’s respectable 4.1% underlying dividend growth yielded $140.2bn in payouts, comprising two-fifths of the global second quarter total. This accelerated growth was particularly impressive given cuts made by Deutsche Bank and Volkswagen, which subtracted 2% from the European total, Henderson noted. 

Europe’s rate of underlying dividend growth even outpaced the US market, which saw its dividend growth decelerate to 4.6%, its slowest level since 2013. 

And the fact that over 80% of Europe’s 2016 dividends have been paid is another positive takeaway, Henderson indicated.

Despite the encouraging signs from the rapidity of European dividend growth, Crooke predicts H2 will still prove weaker than the first half of 2016. 

“The second half of the year is likely to be weaker than the first, partly because seasonal patterns mean the emphasis shifts slightly towards those parts of the world where dividends are growing more slowly, like emerging markets, Australia, and the UK,” he said. “As a result of the Q2 trends, Henderson has reduced its forecast for the full year to $1.16 trillion, down from $1.18 trillion. This is equivalent to a headline expansion of 1.1%, or 1.4% on an underlying basis.”

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