Brexit-hit pound helps deliver 'knockout year' for investors
Investors are set to enjoy a "knockout year" after dividends hit an all-time record of £33.3 billion in the second quarter, thanks to a lift from the Brexit-hit pound.
This represents a rise of 14.5% year on year in headline terms, the fastest in over three years, according to Capita Asset Services.
Sterling's collapse since last year's EU referendum has resulted in a substantial boost to dividends, as it means firms with overseas earnings enjoy a currency tailwind when converting them back into pounds.
Aside from the weak pound, high special dividends and robust underlying growth also lifted overall growth, the report said.
Such a strong quarter has led Capita Asset Services to upgrade its 2017 forecast for headline dividends to record £90.6 billion, up 7% year on year.
Justin Cooper, chief executive of Shareholder Solutions - part of Capita Asset Services, said: "The gloves came off in the second quarter, as UK plc limbered up to deliver a knockout year in dividends."
He pointed out that much of these gains came from large foreign exchange gains, with the weak pound adding £1.2 billion of gains.
"Exchange rate gains have come not only for big multinationals declaring dividends in foreign currencies, but also for others with overseas operations, or export sales, supercharging their profits and so their dividends," he said.
However, even on a constant-currency basis, underlying growth was still impressive at 7.8%, the fastest increase in two years, thanks to a large haul of special dividends and rising profits.
Indeed, special payouts of £4.6 billion were the second-highest on record for any quarter. This was underpinned by a very large payment from National Grid, which accounted for three quarters of the headline growth rate.
"Shareholders can be thankful they had punchy special dividends and the weak pound in their corner, but improving profits have also played their part," Mr Cooper added.
By sector, the largest dividends came from financials, but they grew more slowly than the average, despite a very generous payout from Lloyds Banking Group.
Growth was particularly strong in the resurgent mining sector, while consumer goods and housebuilders also performed well, with every company raising its payout.
The report cautioned that the second half of the year is likely to show weaker growth than the first half. This is mainly because the weak pound will have fully washed through the numbers now the anniversary of the Brexit referendum has passed, it said.
Nevertheless, Mr Cooper said that investors can still look forward to dividends hitting a new record this year, with headline dividends of £90.6 billion, smashing the previous record set in 2014.
"The relative strength of the UK consumer, until recently at least, and surging economic growth abroad has supported stronger dividend growth than we have seen in some time," he said.
"Most of the excitement for 2017 is now behind us. As we move towards 2018, the extent to which the weakening UK economy continues to diverge from improving trends elsewhere in the world will determine which companies are still able to deliver strong dividend growth.
"The uncertainty over the economy, the Brexit negotiations, and the unstable political situation are key factors to watch."