December 2017
Although the UK lagged many other major equity markets during 2017 as a whole, it posted a robust performance during December. Both the FTSE 100 Index and the FTSE 250 Index reached new highs during the month. Although the FTSE 100 Index’s yield fell during December, it rose over 2017 as a whole to end the year at 3.81%.
- Leisure goods was the best-performing FTSE industry sector in 2017
- The worst-performing sector was fixed line telecoms
- Dividend growth is likely to be slower in 2018 than 2017
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Although the UK lagged many other major equity markets during 2017 as a whole, it posted a robust performance during December. Both the FTSE 100 Index and the FTSE 250 Index reached new highs during the month. The FTSE 100 Index rose by 4.9% during December and by 7.6% over 2017; meanwhile, the mid-cap FTSE 250 Index posted a monthly gain of 3.9% and an annual increase of 14.7%.
“Both the FTSE 100 Index and the FTSE 250 Index reached new highs”
The best-performing FTSE industry sectors over 2017 as a whole were leisure goods, industrial metals & mining, electronic & electrical equipment, and beverages. In contrast, the worst-performing sectors over the year included fixed line telecoms, oil equipment & services, utilities, and tech hardware & equipment.
Shares in beleaguered sub-prime credit provider Provident Financial dipped again during December amid reports that the Financial Conduct Authority is investigating its vehicle financing business. In the last six months, the company has issued two profit warnings, announced a restructuring and cancelled its full-year dividend.
Having issued a profit warning in August, electronics and telecoms retailer and FTSE 250 Index constituent Dixons Carphone cut its profit forecast again in December, citing problems in its mobile phone business against a “tough” market backdrop. The company intends to maintain its full-year dividend at 11.25p per share.
Although the FTSE 100 Index’s yield fell during December from 3.95% to 3.81%, it rose over 2017 as a whole, having begun the year at 3.65%. The yield on the FTSE 250 Index dropped from to 2.73% to 2.64%, having started 2017 at 2.72%. In comparison, the ten-year gilt yield declined from 1.39% to 1.23% during December, having begun 2017 at 1.24%.
Dividend growth is likely to be slower in 2018 than in 2017, according to Link Asset Services, and without the additional benefit of foreign exchange gains, unless the pound takes another downward spiral. The mining sector is expected to continue to contribute to dividend growth in 2018, although its overall influence will be less pronounced than in 2017. Elsewhere, having reinstated its interim dividend, Tesco is expected to restore its annual payout in 2018. Looking ahead, Link expects dividend growth to be less “dramatic” for income investors over the coming year; despite this, the overall value distributed by UK companies is expected to be “at or near” the record levels achieved in 2017.
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