Q3 was stronger than expected overall, with the total reaching £24.9 billion including special dividends.
The weaker pound boosted many multinationals which produced a £2.5 billion currency gain on dividends. This helped 25 sectors increase payouts as opposed to just 14 that cut them.
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Source: Capita Asset Services
Banks getting their houses in order
Earlier in the year we reported on UK banks paying attractive dividends.. Much has changed since February but based on this Capita report, financials are still providing some dividend joy.
HSBC boosted its dividend by 20% courtesy of the foreign exchange (FX) effect, whereas Lloyds (which has now withdrawn its retail share offer) increased its payout by 13%. Lloyds in particular is an interesting case because the much-maligned bank appears to have got its house in order in a bid to return to normality.
The oil and beverage sectors also had a good Q3 for dividends, although this is skewed slightly by some of the big individual players like Royal Dutch Shell and SAB Miller, both of whom paid out larger than usual dividends (in the case of SAB Miller this was a one-off special dividend due to their takeover by ABInBev).
Michelle McGrade, chief investment officer at TD Direct Investing, says: “These figures highlight that UK companies, and hence UK equity income funds which invest in them, remain an attractive proposition for income investors. However it’s important to remember the currency effect – sterling weakness has in some cases given these figures an added lift.”
Is currency masking the real story?
The weakness of the pound has had a strong effect on these figures. If you strip out the currency windfall and special dividends then a 0.1% deficit, year-on-year, is what is left. A number of multinationals across different sectors cut dividends to an accumulative tune of £2.2billion.
Take a look at our Autumn Investment Outlook. for more on what could happen in the fourth quarter of this year and beyond.
If you are looking for income in this low interest rate environment, we have picked out some of our favourite income funds. which might serve as inspiration.
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