View the article online at http://citywire.co.uk/money/article/a876038
Miner rout to spark first UK dividends fall for six years
Cuts from Glencore and Anglo American will lead to UK dividends falling this year for the first time since 2010, says Capita.
The rout of mining companies and the supermarket sector will lead to dividends from UK companies falling this year for the first time since 2010, according to research.
Capita Asset Services, which compiles the quarterly UK Dividend Monitor study, has forecast in its latest report that dividends, excluding special payouts, will fall to £83.8 billion this year, down from £84.6 billion in 2015.
That would mark the first fall in underlying dividends since 2010, when companies were still recovering from the financial crisis.
The group said that headline dividends, which include special payouts, would also drop from 2015's figure, to £86.5 billion. Capita had at the time of its October report predicted headline dividends would rise by 2.5% in 2016 to £89.6 billion.
'Since then, however, a lot has happened and the outlook has darkened markedly,' it said. '£3.4 billion of cuts have already been announced, and more are possible.'
Cuts already announced to 2016 payments from major UK-listed companies include the scrapping of payouts by miners Anglo American (AAL) and Glencore (GLEN) against the backdrop of the commodities rout.
Capita has also assumed further cuts from the supermarket sector, while Standard Chartered (STAN) last November announced it was cancelling its final dividend for 2015, which would have been paid in May this year.
A cut also looks on the cards at BHP Billiton (BLT) but its impact has not been factored into the Capita estimate.
'BHP Billiton looks vulnerable as it grapples with low oil and mineral prices, and the huge cost of the environmental damage caused by its Brazilian venture Samarco,' it said.
'BHP paid out £1.9 billion in 2015, and was the ninth largest UK payer, so a significant cut there would have a large impact on our figures. We have not factored this into our numbers, however, as at this point it is conjecture.'
Will Meadon, manager of the JPMorgan Claverhouse (JCH ) investment trust, said the prospect of a fall in payouts did not come as a surprise.
'On the surface, this fear might appear unfounded. For example, both the oil and mining sectors would appear to offer attractive dividend yields: BP (BP) ostensibly offers a prospective yield of 7.7%, Shell (RDSb) 8.0%, whilst BHP Billiton’s yield of over 11% is surely irresistible?' he said.
'Regrettably, the market is not so inefficient as to offer investors such mouth-watering yields without them also coming with a huge health warning. Such ostensibly high yields pose substantial investment risk to the unwary investor, as they may indicate unsustainable dividends over the medium-term.'
Capita's figures are based on dividend payments from all UK companies listed on the FTSE's main market.
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- Anglo American PLC (AAL.L)
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- Royal Dutch Shell PLC (RDSb.L)
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by Gavin Lumsden on Oct 23, 2016 at 00:01