First-quarter UK Dividend Monitor points to “a rather subdued 2018”

Dividend payments in the UK rose by more than 7 per cent in the first quarter of 2018 year-on-year but this figure has been distorted by one-offs and special payments, according to Link Asset Services’ UK Dividend Monitor Report.

The opening three months of the year are traditionally a weak period for dividends but the latest edition of the closely watched report shows that payouts totalled £16.7bn in Q1 – representing a 7.6 per cent increase on the same quarter in 2017.

However, British American Tobacco’s decision to move to quarterly dividend payments after its recent acquisition of the US tobacco company Reynolds provided a £1bn boost to Q1 payouts. Without this, headline dividends would have risen by just 1.2 per cent.

Although the total dividend payouts in 2018 are set to increase from last year, the report suggested that we will see “a rather subdued 2018 compared to the knockout 2017.”

Source: Link Asset Services

Justin Cooper, chief executive of Link Market Services, said: “Dividend growth in the first quarter was a bit disappointing when excluding one-offs. M&A activity has also proven to be a double-edged sword for dividends. While Sky paid its long-awaited special dividend ahead of its likely takeover agreement with 21st Century Fox, consolidation has depressed dividends by a number of mid-cap firms.”

After excluding special payments amounting to £330m and the British American Tobacco change from the total, payouts decreased by 0.1 per cent on an underlying basis.

However, the report suggested growth has been masked by a strong sterling against the US dollar, which has decreased the value of dividends from US firms by £879m.

Cooper added: “Investors shouldn’t be worried, however. If you take exchange rates out of the picture, dividend growth will continue in 2018 only a little slower than last year. In sterling terms, of course, it’s going to feel much less exciting. As the dollar has steadily weakened, so all those dividends that will be paid this year will attract a much less favourable exchange rate.

“This year’s exchange rate roundabouts will be a lot less fun than last year’s swings. Even so, we still expect UK payouts to breach another new record.”

Dividends – top companies in Q1

Source: Link Asset Services

The report suggested that first quarter payments are typically the lowest and amount to £1 in £6 of the total.

Despite higher oil prices, payments from Shell and BP have not increased, who paid out a quarter of the total dividends in Q1. The healthcare sector paid out the next highest amount, with giants AstraZeneca and GlaxoSmithKline carrying the bulk of the weight.

Elsewhere, the consumer good and housebuilder dividends amounted to nearly the same as the healthcare sector, while mining continued to profit from global economic growth and produced improving payouts.