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Mining sector fuels Q2 dividend growth

July 2018

The second quarter is an important one for UK equity income investors, as it accounts for one-third of total annual dividends. Underlying dividend growth rose at an annualised rate of 7.1% during the second quarter to reach a new record of £30.7 billion, according to Link Asset Services’ Dividend Monitor. 

  • BP increased its dividend for the first time in almost four years
  • Underlying dividend growth reached a new record in Q2
  • Sentiment towards UK Equity Income funds improved in June

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The second quarter is an important one for UK equity income investors, as it accounts for one-third of total annual dividends. Underlying dividend growth rose at an annualised rate of 7.1% during the second quarter to reach a new record of £30.7 billion, according to Link Asset Services’ Dividend Monitor. Three-quarters of sectors experienced an increase in dividends, and dividend growth was particularly strong in the mining sector, which surged by 82% year on year. Headline dividends, however, posted their first decline since the first quarter of 2015, falling at an annualised rate of 2.1% and dampened by a sharp drop in special dividends. 

“Headline dividends posted their first decline since Q1 2015”

During July, the FTSE 100 Index rose by 1.5%, while the FTSE 250 Index posted an increase of 0.2%. The yield on the FTSE 100 Index fell from 3.84% to 3.79%  during July, while the FTSE 250 Index’s yield ended the month unchanged at 2.71%. In comparison, the yield on the benchmark UK government bond rose from 1.31% to 1.39%. 

Chemicals company and FTSE 100 Index constituent Croda International increased its interim dividend by almost 9% to 38p per share during July. Meanwhile, oil company BP increased its dividend payout for the first time since the third quarter of 2014: the company reported strong half-year earnings and raised its payout by 2.5% to 10.25 cents per share. Elsewhere, industrial products manufacturer 600 Group – which is listed on AIM – reintroduced a dividend payout after “many years” without one. 

Since the beginning of the year, the best-performing FTSE industry sectors have been automobiles & parts, technology hardware & equipment, food & drug retailers, and industrial metals & mining. At the other end of the performance spectrum, the worst-performing sectors include mobile telecommunications, software & computer services, tobacco, and fixed-line telecommunications.

Against a backdrop of political uncertainty and possible trade wars, net retail sales of funds reached their lowest level for 18 months during June, according to the Investment Association (IA). Although UK equity funds remained out of favour amid ongoing Brexit-related uncertainties, sentiment towards funds in the UK Equity Income sector staged a recovery during the month: having suffered outflows of £300 million during May, UK Equity Income experienced outflows of only £1 million during June. In contrast, outflows of funds in the Global Equity Income sector intensified.


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