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UK equity yields fell during July

July 2017

UK equity indices generally rose during July and yields fell. Dividend payouts hit a new second-quarter record in 2017, according to Capita Asset Services, reaching a total of £33.3 billion. Dividends were boosted by a strong contribution from companies in a “resurgent” mining sector. Although the second half of the year is expected to be quieter than the first half, Capita still expects 2017 to be a record year for UK dividends.

  • Special dividends made a strong contribution to total payouts in Q2
  • UK mid-caps performed better than large caps during July
  • Demand for funds in the UK Equity Income sector declined sharply during June

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UK equity indices generally rose during July, although medium-sized companies generally performed better than their larger counterparts. Over the month as a whole, the FTSE 250 Index rose by 2.3%, while the blue-chip FTSE 100 Index climbed by 0.8%. Meanwhile, the FTSE 250 Index’s yield fell from 2.71% to 2.65% during July, and the yield on the FTSE 100 Index eased from 3.84% to 3.80% . In comparison, the yield on the ten-year gilt edged down from 1.33% to 1.29% over the month.

“Sterling’s weakness continued to flatter payouts from UK companies”

Support services and construction firm Carillion issued a profit warning and announced the suspension of its dividend payout. Elsewhere, HSBC Holdings announced a new share buyback of up to US$2 billion, taking its buyback total to US$5.5 billion. According to HSBC’s CEO, Stuart Gulliver, the company has paid “more in dividends than any other European or American bank” over the past 12 months.

UK dividend payouts hit a new second-quarter record in 2017, according to Capita Asset Services’ quarterly UK Dividend Monitor , reaching a total of £33.3 billion. Dividends were boosted by a strong contribution from companies in a “resurgent” mining sector, where second-quarter payouts rose at an annualised rate of 73%. During July, miner Anglo American revealed stronger-than-expected half-year results and a sharp decline in debt, and announced the early reinstatement of its dividend payout. Its dividend policy will target a payout of 40% of underlying earnings. Anglo American announced the cancellation of its dividend payout in December 2015 as part of a restructuring programme designed to address a downturn in commodity prices.

Total underlying dividend payments of £28.6 billion were augmented in the second quarter by special dividends totalling £4.6 billion. Sterling’s weakness continued to flatter payouts from UK companies: underlying growth in the second quarter was 12.6%; however, when the currency effects were stripped out, underlying growth was a slightly more modest 7.8%. Looking ahead, although the second half of the year is expected to be quieter than the first half in terms of dividends, Capita still expects 2017 to be a record year.

Demand for funds in the UK Equity Income sector declined sharply during June, according to the Investment Association (IA) . Net retail sales notched up outflows of £428 million, making the sector one of the most unpopular during the month, surpassed only by UK Smaller Companies and UK All Companies.


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