Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a1042193

Mining dividend recovery slips under the radar

FTSE 100 dividend growth has been robust in the first half, boosted by miners and weak sterling. Can the momentum continue?

 
Mining dividend recovery slips under the radar

FTSE 100 companies are on course to produce strong dividend growth this year, thanks to a recovery in mining stocks and weak sterling.

Just under 60 of the FTSE 100 firms will report first half trading updates over the summer. Of the 53 blue chips which have reported so far, two have cut their interim dividend payouts.

Yesterday, insurer Admiral (ADM) saw its shares fall after it cut its dividend by 11%. Earlier in the month, embattled educational publisher Pearson (PSON) slashed its dividend by 72%.

Once special dividends are incorporated, Direct Line's (DLG) total payout was lower year-on-year, even though its ordinary dividend had risen substantially.

In spite of these blips, research by AJ Bell shows FTSE 100 dividends grew by 15% after first-half reporting (excluding special dividends). Results are still to come from Antofagasta (ANTO), Bunzl (BNZL), Persimmon (PSN), and WPP (WPP).

AJ Bell forecasts that dividend payouts will total £84.7 billion in 2017, which would equate to a dividend yield of around 4%. This is far ahead of inflation at 2.6% and the 10-year gilt yield at 1.1%.

The companies below have grown their dividends by at least 10% at the interim stage:

Company Interim dividend increase
Taylor Wimpey (TW) 334%
Rio Tinto (RIO) 158%
Anglo American (AAL) 100%
Convatec (CTEC) 100%
Direct Line (DLG) 39%
Old Mutual (OML) 32%
RSA (RSA) 32%
Worldpay (WPG) 31%
Coca-Cola Hellenic Bottling (CCH) 29%
Rentokil Initial (RTO) 27%

Source: AJ Bell

Weak pound

AJ Bell investment director Russ Mould noted that sterling's fall against the euro and dollar played a role in boosting dividend payments. This is particularly true for international earners, such as BP (BP), Shell (RDSA), HSBC (HSBA) and Unilever (ULVR), as the non-sterling dividends are worth more when translated into sterling.

Eric Moore, manager of the £197 million Miton Income fund, described the weak pound as a boon for dividend growth, given that payouts are worth 15% more than they were pre-Brexit.

However, he warned that as time moves on the currency boost annualises out and the spotlight will fall on underlying dividend growth. In the case of BP, Moore said this will be a challenge because its underlying dividend growth is close to zero.

In the fund manager's opinion, the best income opportunities lie in the areas that were hardest hit during the downturn.

‘The income-paying ability of mining stocks is under-appreciated. These companies all cut their dividends in 2015-2016, so there’s still some scar tissue with investors,' Moore said.

'But this provides opportunity. Even banks should be coming back on the radar of the income investor,' he added.

Moore also likes life insurers. Here, he favours Legal & General (LGEN), which has grown its dividend by more than 15% a year for three years and represents one of the largest positions in the fund.

Consumer squeeze

Miton Income has little exposure to companies that are reliant on the health of the UK consumer. For example, it has no food retailers or property companies and has a small exposure to housebuilders, leisure companies and general retailers.

‘Only around one third of revenues of companies in the fund are earned in the UK,’ he said.

Moore added that the outlook for income remains positive due to the prevalence of overseas earnings on the main index.

‘It is quite easy to find blue chip stocks with attractive yields. Also, the prospects for dividend growth this year are reasonable,’ he noted.

Colin Morton, manager of Franklin UK Equity Income fund, said the earnings season ‘showed no signs of a disaster’. However, companies returning cash to shareholders could mark a more defensive outlook.

‘Special dividends can be a reflection that companies would rather return money to shareholders than invest it elsewhere, signalling a lack of investment opportunities and potential concerns around Brexit and economic growth,’ he said.

‘As such, special dividends can be a double-edged sword.’

Mould also sounded a warning over the earnings coverage of the dividends being paid out.

'Income-seekers need to consider the fact that forecast FTSE 100 aggregate earnings for 2017 only cover forecast dividends by around 1.6 times, when a figure of two or above would give more comfort that the payment estimates are entirely reliable,' Mould said.

An unexpected economic downturn, for example, could lead to dividend cuts, just as it did in 2008 and 2009, rather than the growth that is currently anticipated, the investment director added.

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the funds

  • FP Miton Income A Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Franklin UK Equity Income A Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • Admiral Group PLC (ADML)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Pearson PLC (PSON)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Direct Line Insurance Group PLC (DLGD)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Antofagasta PLC
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Bunzl plc (BNZL)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Persimmon PLC (PSN)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • WPP PLC (WPP)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Taylor Wimpey PLC (TWXX)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Rio Tinto PLC (RIOXX)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Anglo American PLC (AAL)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • ConvaTec Group PLC (CNVEC)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Old Mutual PLC (OML)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • RSA Insurance Group PLC (RSA)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Worldpay Group PLC (WPGX)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Coca Cola HBC AG (CCHX)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Rentokil Initial PLC (RTO)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • BP PLC (BP)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • HSBC Holdings PLC (HSBA)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Unilever PLC (ULVR)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Legal & General Group PLC (LGEN)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • Eric Moore
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Colin Morton
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Budget ‘stealth tax’ to hit endowment savers

by Jack Gilbert on Nov 24, 2017 at 09:29

Sorry, this link is not
quite ready yet