Writing in its latest UK Dividend Monitor report, the research firm said that while underlying dividends rose almost 7% to hit a record of £84.6bn in 2015, “growth slowed steadily all year”.
“The picture for dividends is very mixed. Indeed, we are far less certain about the outcome for the year ahead than we have been for several years. Some very large UK-listed firms have slashed their payouts lately, and there may be more bad news to come. Meanwhile, currency effects continue to add considerable volatility to UK payments,” Capita said.
The final three months of the year saw payouts jump 8.4% to £16.5bn, at the headline level, but this, the firm said was “flattered by higher special dividends that concealed the ongoing slowdown in underlying dividend growth”.
“UK investors benefited from £2.5bn in currency gains in 2015, accounting for almost half the underlying growth over the course of the year,” Capita added, as the pound traded 7.7% lower against the dollar over the year.
While cuts to company dividends were a major talking point over the course of the year, with many of the UK’s food retailers slashing dividends, along with Centrica and Standard Chartered, the full effect of such cuts will hit much harder in 2016.
“At least £3.4bn of 2016 cancellations have already been announced as Anglo American joins Glencore and Standard Chartered, and we may yet see more cuts from others. In addition, SAB Miller’s takeover will remove its £1.3bn from the UK dividend pot,” the firm said.
Justin Cooper, chief executive of shareholder solutions, part of Capita Asset Services said: “Our forecast accounts for £3.4bn of cuts that have already been announced, but at least an additional £2.1bn could be at risk. BHP Billiton’s payout looks vulnerable, as it grapples with low prices for its commodities and major environmental clean-up costs, and Standard Chartered may yet cancel its autumn interim too. Much speculation surrounds the UK listed oil majors, but they are likely to hold firm for the time being, relying on cost cutting and strong balance sheets to sustain payouts.”
As a result, it expects underlying dividends will fall 0.9% to £83.8bn, while headline dividends are set for a 1.3% fall to £86.5bn.
“Overall, UK equities will yield 3.9% over the next twelve months, with the prospective 12 month yield on the large-cap index standing at 4.0%, and 2.9% for mid-caps,” the firm added.
