Wealth Manager - the site for professional investment managers

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

Bumper dividend growth hides underlying FX weakness

Bumper dividend growth hides underlying FX weakness

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.  

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play CEO Tapes: Buxton to Gilbert - ‘my Glencore quandary’

CEO Tapes: Buxton to Gilbert - ‘my Glencore quandary’

Do not miss the first two minutes of this film as Richard Buxton shares how he has been challenged by a client for owning shares in a certain company.

Play CEO Tapes: the huge opportunities for asset managers

CEO Tapes: the huge opportunities for asset managers

From tech disruption, retirement and poaching, the CEO discuss the opportunities for their businesses in this episode.

Play CEO Tapes: 'we're just a bunch of white dudes sitting here'

CEO Tapes: 'we're just a bunch of white dudes sitting here'

In our brand new series, eight CEOs discuss how the industry could do a better job for female fund managers.

Read More
Your Business: Cover Star Club

Profile: Kevin Doran's formula for success at AJ Bell

Profile: Kevin Doran's formula for success at AJ Bell

From a degree in theoretical physics to teaching and becoming one of the youngest chief investment officers in the UK, Kevin Doran has certainly had an interesting career.

Wealth Manager on Twitter