Belfast Telegraph

Slump in sterling boosts dividend payments amid exchange rate gains 'sugar rush'

Investors have seen their dividend payments jump 16% since the start of the year thanks to a lift from the Brexit-hit pound, a report said.

Dividends reached £15.3 billion for the first quarter as multinationals enjoyed an exchange rate boost on their overseas earnings when converting them back into pounds, according to Capita Asset Services.

The report said dividends also rose 9.5% to £15.4 billion o n a headline basis for the first three months of the year, with growth impacted by a steep decline in special dividends.

Justin Cooper, chief executive of Shareholder Solutions, part of Capita Asset Services, said the "sugar rush" of exchange rate gains would not be enough to satisfy investors in the long term.

He said: "It's going to wear off quickly in the third quarter, unless there is a second leg downwards in the pound.

"That cash is of course real, at least in sterling terms, but only long-term profit growth can deliver sustainable increases in the income from shares.

"Unfortunately, profit growth has been rather meagre from UK plc of late."

The report found that sterling's slump had bolstered payments by 12 percentage points year-on-year.

The rise was also underpinned by a stronger-than-expected payout from BHP Billiton - the world's biggest miner by market capitalisation - which added 3.5 percentage points to the headline growth rate.

It said telecoms firms and consumer goods businesses, coupled with energy and commodities firms, had chalked up the best performance, while healthcare and pharmaceuticals suffered.

Mr Cooper added: "Global growth is picking up strongly, however, and that should spur expansion in company earnings.

"Dividends will benefit in concert, though they tend to lag profit growth by about six months.

"That bodes well for the top 100, but in the meantime the exciting story rests with the mid-caps.

"They depend most on the prospects for the domestic economy, while those in the top 100 are more related to global economic trends and the exchange rate."

The report has forecast underlying dividends to climb by 7.7% to £84.6 billion for this year, but expects headline dividend growth to ease to 2.8% on the back of weaker special dividends.