UK equity prices generally rose during July as intensifying speculation over the possibility of a no-deal Brexit drove down the pound’s value against the US dollar and the euro. Dividend payouts from UK-listed firms are expected to reach record levels this year, according to Link Asset Services’ quarterly Dividend Monitor, which expects total payments of £107 billion.
- Sterling’s weakness and special dividends have driven headline dividend growth
- Share prices in the utilities sectors have underperformed since the start of 2019
- Miner Rio Tinto was the top dividend payer during Q2
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UK equity prices generally rose during July as intensifying speculation over the possibility of a no-deal Brexit drove down the pound’s value against the US dollar and the euro. During July, the FTSE 100 Index rose by 2.2% and the FTSE 250 Index climbed by 1.1%. The yield on the FTSE 100 Index dropped over July from 4.34% to 4.25% and the FTSE 250 Index’s yield eased from 3.17% to 3.15%. The yield on the benchmark UK government bond fell from 0.79% to 0.60%.
”The UK’s dividend clothes are starting to look a bit threadbare” (Link Asset Services)
Bakery chain Greggs reported a strong increase in first-half profits, raised its interim dividend, and announced a 35-pence-per-share special dividend worth a total of £35 million. In contrast, gas and electricity supplier Centrica revealed a sharp decline in first-half earnings – which the company attributed in part to the Government’s UK energy price cap – and announced that it was “rebasing” its annual dividend payout from 12 pence per share to five pence per share. Elsewhere, takeaway delivery firm and FTSE 100 Index constituent Just Eat reached an agreement in principle to combine with Dutch competitor Takeaway.com.
The best-performing FTSE industry sectors since the start of the year include leisure goods, industrial metals & mining, software & computer services, and electronic & electrical equipment. At the other end of the performance spectrum, the worst performers included automobiles & parts, telecommunications, and utilities.
Dividend payouts from UK-listed firms are expected to reach record levels this year, according to Link Asset Services’ quarterly Dividend Monitor, which expects total payments of £107 billion. However, forecast headline growth of 7.6% in 2019 has been enhanced by the pound’s weakness and by a series of sizeable special dividend payouts; underlying growth is expected to be substantially lower at 2.9%. Link warned: “Investors are being dazzled by eye-catching specials and exchange-rate trimmings, but the UK’s dividend clothes are starting to look a bit threadbare underneath”.
During the second quarter of 2019, total payments rose by 14.5% to £37.8 billion, led by special dividends from miner Rio Tinto, technology company Micro Focus International, and RBS. The banking sector’s contribution was boosted by RBS, Standard Chartered, and Barclays. Underlying growth, however, was more muted at 5%. Over the next 12 months, Link expects the FTSE 100 Index and the FTSE 250 Index to yield 4.4% and 2.9% respectively, excluding special dividends.
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