November 2017
Although the FTSE 100 Index reached a new high during November, UK equity prices generally declined over the month as a whole, while yields rose. The Bank of England implemented its first increase in interest rates since 2007, raising base rate from 0.25% to 0.50%.
- The headline rate of global dividend growth rose in Q3 at its most rapid rate for three years
- The UK’s underlying dividend growth was the fastest in the world during Q3
- Dividend payouts from the mining sector picked up
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Although the FTSE 100 Index reached a new high during November, UK equity prices generally declined over the month as a whole. The FTSE 100 Index fell by 2.2%, while the FTSE 250 Index dropped by 1.4%. In turn, yields increased: the FTSE 100 Index’s yield rose from 3.86% to 3.95% during November, while the yield on the FTSE 250 Index climbed from 2.68% to 2.73%. In comparison, the ten-year gilt yield rose from 1.37% to 1.39%. During November, the Bank of England implemented its first increase in interest rates since 2007, raising base rate from 0.25% to 0.50%. Despite this, investors appear relatively sanguine that any further tightening is likely to be very gradual.
“Demand for equity income funds generally declined”
The best-performing industry sectors over the first 11 months of the year included leisure goods, industrial metals & mining, and electronic & electrical equipment. In comparison, companies in the telecoms, oil services, and utilities sectors have fared poorly. During November, Thames Water suspended its dividend payout to its shareholders, citing the need to “focus on improvements in operational performance”. The company has faced criticism for pollution and for the fact that it pays no corporation tax.
Global dividend growth rose at an annualised rate of 14.5% during the third quarter of 2017 according to Janus Henderson’s Global Dividend Index, posting its fastest headline growth for three years. Growth was supported by the improving global economic backdrop, and by high special dividend payments, including a substantial payout from China Mobile. Dividends grew at an underlying rate of 8.4%, representing its fastest growth for almost two years. In the UK, dividend growth rose at an annualised headline rate of 12.7% during the third quarter; underlying growth was the fastest in the world for the period at 17.5%. Alongside the waning effects of sterling’s strength, higher commodity prices and improved cash flow provided companies in the mining sector with the opportunity to reinstate and increase their dividend payouts.
Demand for equity income funds generally declined during October, according to recent data from the Investment Association (IA). The worst-selling IA sector during the month was UK Equity Income; funds in the UK All Companies and Global Equity Income sectors also remained out of favour. In comparison, demand for funds in the UK Smaller Companies sector picked up to reach its highest level since June.
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