While the third quarter of this year saw a record for shareholder payouts, experts have warned that the outlook will not be as rosy in 2016. The latest
Capita UK dividend monitor, produced by Capita Asset Services, concludes that while total growth in shareholder payouts had risen 6.8% year on year to reach £27.2bn in the third quarter, leading to a full-year estimate for 2015 of £87.2bn, 2016 will see “sharply slower growth”. The provisional growth forecast for 2016 is just 3%.
A big reason for this is falling commodity prices, with some companies cutting their dividends completely in order to save money. “The concentration of global mining firms listed on the UK stock exchange means investor dividends in the UK are more vulnerable to the current turmoil in commodity markets,” the report states.
Dividends managed to absorb some of these reductions in the most recent figures due to favourable exchange rates, Capita continues. Financial experts have been analysing the report further.
Lay of the landLaura Dew, writing for
Investment Week, considers various industries to see which ones are currently paying the most dividends. She notes: “Financials remained the top sector in the third quarter, with dividend growth of 44% to £4.7bn. This was due to a £600m interim dividend payout from Lloyds Bank, its first since the financial crisis, and an 11% increase from HSBC.”
However, consumer services had seen dividends “drop by 31% from £3.4bn a year ago to £2.3bn, due to Tesco and Sainsbury’s slashing payouts”. Mid caps continued to grow faster than the top 100 companies, climbing 30.8% compared with 4.1% year on year.
Dew points out that while the collapse in commodity companies’ profitability is expected to have an impact, BP and Royal Dutch Shell have retained their positions in the top five dividend-paying companies this time around, and Glencore is listed as 15th – but it has said it will not be making a dividend payout in 2016 in a bid to save cash.
The article quotes Justin Cooper, Chief Executive of Shareholder Solutions, part of Capita Asset Services: “Companies tend only to cut their dividend in extreme circumstances, either if their profitability is permanently lower or balance sheets are under pressure, so we still expect growth overall next year. The top 100 in particular is struggling to make any headway.”
Investment Week comment
Slowing downAt
City AM, Jessica Morris focuses more on why commodities companies are having such a difficult time. “The prices of industrial metals like copper have fallen recently, straining the margins of mining companies, and leaving them with less to give back to investors,” she says.
The article also includes more comment from Capita’s Justin Cooper, who says: “Income investors can take comfort in the fact that equities continue to offer a very attractive yield compared to other asset classes, but with risks abounding, they should ensure they keep their portfolios well diversified.”
The article highlights the cushioning effect of the exchange rate by quoting from the report: “The pound was lower against the US dollar in the third quarter compared to the same period in 2014. Half the dividends by value among the top 20 payers are declared in US dollars, so there was a large currency gain in the quarter.”
City AM opinion
Boom and bust?Financial website
ThisisMoney.co.uk echoes many of the earlier comments, confirming that dividend payouts are expected to reduce as a result of “struggling mining and supermarket sectors”. It adds: “The reduction in dividends follows a peak in the second quarter, when total payouts reached their highest levels since before the 2008 financial crisis.”
The article also picks up on Capita’s comment that it was “sceptical of suggestions that Royal Dutch Shell, the world’s largest dividend payer, could cut its payouts”. It goes on to quote a Capita spokesperson: “Oil prices are low, and Shell is cutting costs and capex rapidly to preserve cash. It has not cut its dividend since World War II, and even though dividend cover is very low, we expect the company to maintain in dollar terms what it pays to investors."
ThisIsMoney.co.uk report
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