A sharp bounce in sterling’s exchange value versus the dollar was a stiff headwind for UK dividends in the first quarter, with special payments the only factor pushing annual growth over zero, to 1.2%.
While a headline payout of £16.7 billion - up 7.6% year-on-year - appeared healthy, the majority of this was funded by changes to payout schedules, rather than a sudden excess of cash.
Excluding calendar effects, headline dividends would have only been 1.2% higher, and excluding special payments dividends fell 0.1%, to below forecast, according to data from Link Asset Services, formerly the Capita Dividend Monitor.
The total paid out in the three months was particularly flattered by British American Tobacco’s decision to move to quarterly payments following its purchase of US rival Reynolds last year.
That helped to neutralise a 12% gain in the GBP/USD exchange rate over the 12 months, which pushed down the sterling value of US dollar payouts by £879 million.
‘By contrast, the pound was weaker against the euro, creating a small exchange-rate gain for investors in the small number of companies that declare their dividends in that currency,’ said Link.
‘On current trends, the negative exchange-rate effect was significantly larger in Q1 (relative to the total paid) than is likely later in the year. This means growth in later quarters will be slightly stronger, after taking the BAT timing effect into account, though we continue to expect a rather subdued 2018 compared to the knockout 2017.’
A continued recovery in mining sector cashflows would likely to match recent FX changes with Link leaving its full-year dividend forecast unchanged at £90.4 billion, 2.9% higher year-on-year.