Leading UK equity income managers are warning that dividend growth will halve to around 5% next year due to slowing earnings growth and fewer special divis being paid out.
JOHCM UK Equity Income fund co-managers Clive Beagles and James Lowen are forecasting 5% dividend growth in 2013 down from 8-10% this year. BlackRock UK Income manager Nick McLeod-Clarke also predicts 5% as he looks to grow his fund’s distribution for the 27th consecutive year.
Meanwhile Richard Hughes, manager of M&G’s Charifund, is slightly more optimistic, expecting 5-6% dividend growth in 2013 with Standard Life Investments UK Equity High Income fund manager Karen Robertson leading the bulls, believing payouts will rise by 6-7%, growing in line with earnings.
But S&P Capital IQ fund analyst Daniel Vaughan says much will depend on the actions of certain key index stocks, such Vodafone.
‘Forecasts for dividend growth next year are complicated by the issue of special dividends, Vaughan said. ‘A key stock in this debate is Vodafone, whose dividend accounts for 10% of the historical FTSE All-Share dividend yield. Much of the cash payment stems from a special dividend payment passed on from the Verizon business.’
But a number of managers are growing more cautious on Vodafone from a valuation perspective with Beagles and Lowen underweight the stock with a 2.8% weighting compared to the index’s 4.8% on concerns that it is now looking expensive.