UK equity income market review: Brexit hangs in the balance

November 2018

UK share prices fell during November as months of Brexit negotiation between the UK and the EU finally culminated in an agreed deal. The agreement will go before the House of Commons for a vote on 11 December, but there are considerable doubts whether it will receive sufficient backing from UK MPs. As the EU shows no desire to restart negotiations, a rejection of the deal by the Parliament could result in a no-deal Brexit, or no Brexit at all. 

  • UK equity indices fell during November
  • Q3 global dividend payments rose to record levels
  • Payouts from the mining and banking sectors recovered in Q3

UK share prices fell during November as months of Brexit negotiation between the UK and the EU finally culminated in an agreed deal. The agreement will go before the House of Commons for a vote on 11 December, but there are considerable doubts whether it will receive sufficient backing from UK MPs. As the EU shows no desire to restart negotiations, a rejection of the deal by the Parliament could result in a no-deal Brexit, or no Brexit at all. 

“The EU shows no desire to restart negotiations”

Over the month, the FTSE 100 Index fell by 2.1% while the FTSE 250 Index dropped by 2.3%. Royal Dutch Shell reported a 37% increase in third-quarter earnings that were boosted by higher energy prices. The company completed the first tranche of the share buyback programme revealed in July, and announced the start of its second tranche. Royal Dutch Shell intends to buy back at least US$25 billion of its shares by the end of 2020. Meanwhile, having issued a profit warning in October, FTSE 100 Index constituent Royal Mail reported a 27% drop in half-year pre-tax profits. Elsewhere, in the FTSE 250 Index, security services operator G4S issued a profit warning, and tour operator Thomas Cook issued its second profit warning in two months and suspended its dividend payout.

Since the beginning of the year, the best-performing FTSE sectors include technology hardware & equipment, pharmaceuticals & biotechnology, industrial metals and mining, and food & drug retailers. At the other end of the performance spectrum, the worst-performing FTSE sectors include tobacco, industrial transport, and software & computer services. The yield on the FTSE 100 Index rose from 4.25% to 4.37% while the FTSE 250 Index’s yield climbed from 3.05% to 3.16%. In comparison, the benchmark UK government bond yield fell from 1.26% to 1.23%.

Third-quarter global dividend payouts rose to record levels, according to Janus Henderson’s most recent Global Dividend Index. In the UK, third-quarter dividends posted annualised headline growth of 3%. Headline growth was dampened by BAT’s decision to switch to quarterly dividend payouts, a 3.6% drop in special dividends, and sterling’s weakness. Underlying growth was, however, significantly stronger at 11.1%, underpinned by a recovery in dividend payments from the mining and banking sectors. Payouts from companies in financial sectors made up one-third of total dividends paid around the world during the third quarter.


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