Although bond yields have continued to fall to record lows, income-seeking investors do not appear to be moving towards UK equity income, daunted by a backdrop of ongoing political and economic uncertainties. While the trade conflict between the US and China continued to deepen, concerns rose over the outlook for the global economy.
- Brexit continued to weigh on investor sentiment
- UK share prices fell heavily in August, led by blue chips
- Q2 UK dividend growth was flattered by special dividends
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Although bond yields have continued to fall to record lows, income-seeking investors do not appear to be moving towards UK equity income, daunted by a backdrop of ongoing political and economic uncertainties. While the trade conflict between the US and China continued to deepen, concerns rose over the outlook for the global economy. Meanwhile, closer to home, investors became increasingly preoccupied about the likelihood of a no-deal Brexit against a backdrop of political division.
“Global dividend growth lost momentum during the second quarter”
During August, the yield on the benchmark UK government bond dropped from 0.60% to only 0.32%; in contrast, the yield on the FTSE 100 Index rose from 4.25% to 4.54% and the FTSE 250 Index’s yield climbed from 3.15% to 3.23%. According to the Investment Association (IA), the UK Equity Income, mainstream UK All Companies, and UK Smaller Companies sectors all remained firmly out of favour in July, whereas fixed-income funds experienced strong inflows.
Over August as a whole, the FTSE 100 Index fell by 5% while the FTSE 250 Index declined by 1.4%. Since the beginning of the year, the best-performing FTSE industry sectors include leisure goods, technology hardware & equipment, personal goods, healthcare equipment & services, and beverages. In comparison, the worst-performing sectors include automobiles & parts, fixed-line telecommunications, oil equipment & services, banks, and chemicals.
Royal Bank of Scotland (RBS) reported robust half-year earnings, but warned it was unlikely to meet next year’s targets, blaming a deteriorating economic backdrop. The company revealed an interim dividend payout of two pence per share and a special dividend worth 12 pence per share, representing a total of £1.7 billion. RBS Chairman Howard Davies warned that the “subdued” interest-rate outlook is affecting all banks and the entire financial sector as institutions struggle with deteriorating economic prospects and intensifying trade tensions.
Global dividend growth lost momentum during the second quarter according to Janus Henderson’s Global Dividend Index, growing at its slowest rate for two years. During the period, total global dividends rose to a record level of US$513.8 billion; nevertheless, the rate of dividend increases is starting to moderate and the number of cuts is also on the rise. UK dividend payouts rose during the second quarter at a headline rate of 8.6% to reach US$35 billion, boosted by US$4.2 billion-worth of special dividend payments from RBS and miner Rio Tinto.
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