Shareholders of UK companies can this year look forward to the biggest growth in dividend pay outs since 2012. Putting aside special dividends, underlying dividend pay outs are expected to grow 10.4% in 2015, with one off factors “masking a vast improvement” according to the Capita UK Dividend Monitor.
Capita now predicts that dividend pay outs for 2015 will total £86.5 billion. This is an increase of £500 million on predictions made at the beginning of the year. Special dividends are expected to total £400 million.
Despite this forecast upgrade, the total headline pay out halved in the first three months of this year. But Capita assures income investors this was due entirely to the one-off special dividend paid from Vodafone (VOD) at the beginning of 2014, following the sale of its stake in telecoms company Verizon. The special dividend totalled £15.9 billion, making it a world record.
Barclays (BARC) decision to delay paying its dividend by five days also skewed the first quarter figures for 2015. The £630 million pay-out will instead be included in the dividend total for the second quarter.
Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services said: “2015 is off to a flying start for income investors, boding well for the full year. At last we will see strong growth this year, after a disappointing couple of years for dividend growth.
"Yes, the quarter pales in comparison to a year ago at a headline level, when Vodafone paid a world record dividend following its Verizon stake sale. But under the surface, things are clearly picking up pace.”
Which Sectors are Rewarding Shareholders?
The biggest increase in dividends comes from those companies which have direct exposure to the growing UK economy. Domestically focused stocks have benefitted from the low inflationary environment, where a falling oil price and much-needed wage increases have resulted in a larger disposable income for British households.
The Dividend Monitor revealed FTSE 250 listed companies have increased dividends at a more significant rate than those blue chip stocks which make up the FTSE 100. Among the sectors which have seen the most improved pay outs are oil companies, which saw dividend pay-outs increased by 16%. Shell (RDSB) and BP (BP.) increasing their dividend pay-out in dollar terms had a positive impact – as did the strengthening dollar.
“A significant contributor to the improvement this year will be the much lower level of the pound against the US dollar,” reads the Monitor. “In 2014, the pound was very strong against all major currencies, so strong that its climb deducted £3.5 billion from the total dividends paid to shareholders in UK companies.”
The forecasters expect sterling to remain weak against the dollar this year, boosting oil stocks and the 53 companies in the FTSE 350 reporting in dollars.
Conversely, healthcare and pharmaceutical companies underperformed the average income stock – paying out less to shareholders thanks to relatively weak sales. Utilities are also underpaying compared to the average dividend stock.
Investors in supermarket stocks should steady themselves for a tricky year the Monitor warns; Sainsburys (SBRY) was the only food retailer to pay a dividend in the first quarter of the year and Tesco (TSCO) will take some time to recover sufficiently from the accounting scandal that rocked the market last year.
Royal Dutch Shell, AstraZeneca (AZN) and BP have proved the top payers of 2015 so far.
