The latest UK Dividend Monitor from Link shows headline UK dividends hit £94.4bn in 2017, a 10.5% rise year-on-year, surpassing the previous annual record total of £88.1bn achieved in 2014.
While these dividends benefitted from exchange rate gains in the first half of the year, the fourth quarter did see a marked slowdown in growth as these currency gains turned to losses.
The headline total was also boosted by a heavy crop of one-off special dividends last year, worth £6.7bn, of which almost half was the result of National Grid’s £3.2bn payout from the proceeds of its UK gas distributional disposal.
Underlying dividends meanwhile jumped 10.4% year-on-year to £87.7bn, which is the fastest rate of underlying growth since 2012. A resurgent mining sector accounted for just half the £8.3bn annual increase.
However Link has warned investors that this rate of growth will not be maintained in 2018, as it said the mining dividends have now almost fully recovered. At the same time, it expects special dividends to be lower this year, and, if the pound maintains its current exchange rate against the US dollar and the euro, most of the exchange rate gains of 2017 will be reversed in 2018.
Consequently, Link forecast underlying dividends (excluding specials) to rise 3.1% to £90.4bn in 2018, while with an estimated £5.5bn of specials, it said headline dividends will grow by just 1.6% year-on-year to reach £95.9bn. The prospective yield for 2018 is 3.5%
“Record dividends and new highs for share prices gave investors real cause for celebration in 2017, even if one-offs and exchange-rate gains were part of the story,” said Justin Cooper, chief executive of Link Market Services, part of Link Asset Services.
“Beneath the surface, slower but steadier growth continued in the wider market. 2018 may feel like a hangover after 2017’s excesses, as exchange gains are currently set to reverse, specials are likely to fall, and there is nothing on the horizon to match the scale of the mining bounce-back. But there is no reason to be pessimistic. Slow and steady growth should continue to underpin UK dividends, but 2018 will feel sluggish compared to last year, even if it can still eke out a new record of its own.”
