Excluding special dividends, which were 31% higher year on year, dividends rose 12.7% to £28.3bn, the highest of any quarter on record, Capita Asset Services said in its latest UK Dividend Monitor.
At £10.2bn, the financial sector contributed m more than a third of the total, , helped in part by a change in the timing of Barclays’ final payment which traditionally happens in the first quarter, but slipped, this year, into the second.
However, Capita said, even adjusting for the Barclays payment, financial sector dividend payments rose 24.9%, helped significantly by a return to the lists of Lloyds which paid out £585m, its first dividend since the fourth quarter of 2008, while HSBC held the top spot for a third second quarter running.
Indeed, of the top 15 dividend payers over the quarter, which, combined, accounted for 60% of the total, there were four banks (HSBC, Standard Chartered, Barclays, Lloyds) and two insurance companies (Prudential and Legal & General)
According to Capita, while the reintroduction of Lloyds’ dividend was well below the bank’s former might, it was an “excellent sign that normality is returning to the battered sector”.
But, it was, however, careful to temper expectations of a significant run up from here in bank dividends pointing out: “Barclays held its payment steady, while the increase from Standard Chartered was due entirely to a more favourable exchange rate.”
Currency too played a role in the increase in HSBC’s dividend. According to Capita, the firm raised its dividend 5.2% in dollar terms, with the currency strength accounting for the remainder of the 21% increase in sterling terms.
Sterling weakness was, in fact, a tailwind for dividends more generally having acted as a headwind for much of 2014.
“Given the international complexion of the FTSE 100 in particular, many companies declare their dividends in US dollars. In fact, 30% of the Q2 total dividends were declared in that currency. The lower level of the pound boosted the quarter’s total by around £800m, accounting for about three percentage points of the year on year headline growth rate,” Capita said.
Looking ahead
Looking ahead, Capita said the currency is likely to play a key role in UK investors’ dividend experience for the remainder of the year.
Based on the expectation that the prevailing exchange rate will persist for the remainder of the year, Capita has raised its forecast for the full year to £87.2bn, which is 10% lower than the headline level for 2014, which was boosted significantly by the Vodafone special dividend.
It said, while big global companies are expected to continue to receive a fillip from the currency and, despite strong momentum developing across a wide range of sectors, “We expect the growth rate to slow down before the end of the year.”
“The currency boost will diminish, Tesco and Sainsbury between them will pay out £1bn less in the third quarter this year compared to last year, and Imperial Tobacco’s switch to quarterly payments will be felt,” it added.
