The UK equity market experienced a volatile February; share prices fell sharply at the start of the month as investors became increasingly concerned that major central banks might seek to tighten monetary policy more quickly than previously anticipated. Although the FTSE 100 Index fell to its lowest level in over a year during the month, it recovered to end February down 4%.
- The FTSE 100 Index’s yield rose above 4% during February
- The FTSE 100 Index reached its lowest level for a year
- Lloyds Banking Group announced a share buyback
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The UK equity market experienced a volatile February; share prices fell sharply at the start of the month as investors became increasingly concerned that major central banks might seek to tighten monetary policy more quickly than previously anticipated, Although the FTSE 100 Index fell to its lowest level in over a year during the month, it recovered to end February down 4%, while the FTSE 250 Index declined by 2.7%.
“UK companies paid out record dividends totalling £9.4 billion over 2017”
The yield on the FTSE 100 Index climbed from 3.90% to 4.02% during February, and FTSE 250 Index’s yield increased from 2.70% to 2.76%. In comparison, the benchmark gilt yield rose from 1.49% to 1.59% over the month. Since the start of the year, the best-performing FTSE industry sectors have been automobiles & parts, industrial metals & mining, industrial transport, chemicals, and food & drug retailers. The worst-performing sectors included telecommunications, household goods, and tobacco.
Although the banking sector has fallen since the start of the year, it has outperformed the broader FTSE 100 Index. During February, Lloyds Banking Group announced robust full-year profits and raised its dividend by 20%. The bank also revealed a share buyback of up to £1 billion. The company acknowledged its previous strategy of returning value to shareholders via a special dividend, but said that its current preference was to return surplus capital via a buyback programme, given its return to private ownership and the normalisation of its ordinary dividend payment. Meanwhile, Barclays unveiled a £1.9 billion full-year loss caused in part by one-off tax charges. Barclays left its dividend unchanged at three pence per share, but intends to raise its payout to 6.5 pence per share during 2018. Elsewhere, insurance and breakdown recovery company AA issued a profit warning during the month and cut its dividend payout until profits and free cash flow have improved.
UK companies paid out record dividends totalling £9.4 billion over 2017 as a whole, according to Link Asset Services’ most recent Dividend Monitor, driven up not only by sizeable special dividends, but also by a resurgence in payouts from mining companies, which accounted for half the growth in UK dividends during the year. The positive effect of the pound’s post-Brexit weakness is over for UK-based investors and the impact may actually reverse slightly over 2018. Looking ahead, Link expects underlying dividend growth of 3.1% over 2018.
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