U.K. Dividends Grew 7.9% In 2018 But Forward Outlook Remains Cloudy

U.K. Dividends Grew 7.9% In 2018 But Forward Outlook Remains Cloudy

Sturdy development in dividends from the mining and banking sectors enabled one other 12 months of great actual dividend development for the U.Okay. inventory market.

Just lately revealed information evaluation by OLIM Funding Managers signifies that complete U.Okay. dividends grew by 7.9% in 2018 and topped £100 billion ($130 billion) for the primary time.

OLIM mentioned greenback weak point in first half of 2018 was a major headwind, as the primary six months of 2018 noticed a interval of sustained good points by the pound, significantly in opposition to the U.S. greenback.

UK dividends grew 7.9% in 2018 led by London Inventory Change itemizing mining and banking shares. (Picture: Chris Ratcliffe/Bloomberg)© 2016 Bloomberg Finance LP

This noticed the common pound/greenback foreign money charge weaken by over 4% versus the equal charge in 2017, presenting a large headwind for sterling dividend receipts given the big proportion of U.Okay. dividends declared in {dollars}, it added.

Whereas 2018 was not as robust a 12 months for particular funds because the 12 months earlier than, OLIM mentioned FTSE All Share Index constituents nonetheless made nicely over £6 billion of particular funds in 2018. Notable funds got here from Customary Life Aberdeen, Ferguson and AVEVA.

That mentioned the U.Okay. inventory market nonetheless derives half of its revenue from simply ten firms and over a 3rd from simply 5. Worryingly, over 1 / 4 of  the market’s revenue comes from the extremely cyclical mining and oil sectors. Sustained commodity value weak point would therefore put a big a part of the U.Okay. market’s dividend base below menace.

Whereas 2018 is being construed as fairly good 12 months, the outlook for 2019 seems clouded by slowing financial development and Brexit, though foreign money fluctuations must be useful. The pound weakened steadily within the second half of 2018 in opposition to each the greenback and the euro and this could present a useful profit to sterling dividend receipts in 2019, though at present alternate charges this profit might be felt primarily on greenback funds, OLIM mentioned.

Underlying dividend development is unlikely to match that recorded in 2018 given the impact that weaker oil and commodity costs are prone to have on dividend declarations in these sectors, mentioned Patrick Harrington, Director at OLIM Funding Managers.

“In 2018 the market benefited from robust development in mining sector dividends; 2019 is unlikely to see the identical useful enhance to funds from this space given newer commodity value actions. Weaker oil costs will have an effect on BP and Royal Dutch Shell’s dividend paying capability and it’s unlikely both will present a lot, if any, in the best way of dividend development when measured in {dollars}.”

Slowing world financial development and persevering with Brexit uncertainty is prone to put a major brake on dividend development, though any additional Brexit impressed weak point within the pound would clearly be excellent news for the sterling worth of dividends.

Doubts nonetheless dangle over dividends at GlaxoSmithKline, AstraZeneca and SSE the place weakening stability sheets and a scarcity of both standard or money move dividend cowl are placing shareholder funds below stress, Harrington added.

“These elements must be offset, at the very least to some extent by a foreign money tailwind if present alternate charges prevail all year long. Low single digit development in dividends appears the almost definitely final result at current,” he concluded.

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