The final quarter of 2016 ended the year “with a bang”, according to a closely watched report, which shows that the year’s final three months witnessed record-breaking payouts.
The latest UK Dividend Monitor from Capita Asset Services reveals that the UK’s headline dividends reached £84.7bn in 2016 – up by 6.6 per cent on the levels recorded in the previous year.
This was driven by strong dividend performance in the final quarter of the year. Headline dividends in that period were up 11.7 per cent year on year to hit £16.6bn, which is “comfortably” a record for the fourth quarter.
UK dividends by year
Source: Capita Dividend Monitor
However, the report points out that this increase was not driven by large increases in regular dividends but through a combination of higher special dividends and the weak pound.
Special dividends of £6.1bn were more than double the levels seen last year and added an additional £3.3bn to the headline total. The likes of ITV, Prudential and Taylor Wimpey were among those that paid a special dividend in 2016.
Meanwhile, sterling slumped thanks to UK’s vote to quit the European Union. FE Analytics shows that the pound is currently down more than 12 per cent against the dollar over the past 12 months. Sterling weakness added £4.8bn to 2016’s headline dividend total.
Justin Cooper, chief executive of Shareholder Solutions, part of Capita Asset Services, said: “2016 was an unusual year for dividends. It started pessimistically, with a raft of high profile cuts taking their toll.
“But the second-largest haul of special dividends on record, with the added alchemy of huge exchange rate gains following the pound’s devaluation in the summer, ultimately turned a rather leaden year golden.”
Looking at things on a sector level and financials remain those paying the most dividends with collective payouts of £20.3bn, an increase of 7.8 per cent. More than half of these were paid out by the banks.
Consumer goods are the only sector to have increased payouts in every year since 2007. Last year they were up 5.1 per cent to reach £11.8bn.
Source: Capita Dividend Monitor
The picture was much different in the mining sector, however, where dividends halved year-on-year to £3.3bn; this is their level since 2009. However, Capita says “the worst is now past” and many firms that cancelled dividends are expected to restart or increase them in 2017.
As the table in the middle of page shows, Royal Dutch Shell held onto the title of the UK’s largest dividend payer. The Capita Dividend Monitor said: “Shell comfortably produced the largest increase in UK dividends in 2016.
“Having raised billions in new capital to fund its acquisition of BG, all these new shares ranked for Shell’s generous dividend. With an additional 17 per cent boost from the weak pound in the second half of the year, the total dividend was worth £11.1bn in 2016, £3.2bn more than the previous year.”
HSBC was the country’s second largest dividend payer, with its £7.5bn payout representing a 17 per cent increase on the previous year on the back of the strong dollar and a slightly higher share count; BP was in third place mainly thanks to the impact of sterling and its payout was 14 per cent higher at £5.5bn.
Between them, the top five payers comprised 38 per cent of the UK’s total distribution in 2016, up from around one-third in 2015.
When it comes to the outlook for 2017, Capita predicts that underlying dividends will rise by £5.9bn to reach £84.4bn. This would be a “healthy” increase of 7.5 per cent, although it is expected that two-thirds of this will be down to the weaker pound.
But the group adds that is unlikely special dividends will repeat the strong growth of the past year and investors should therefore expect them to fall from 2016’s levels. All in all, Capita thinks headline dividends will grow 3.3 per cent this year to £87.5bn.
Despite the expectation of growth, however, the report warns investors that 2017 will be far from plain sailing.
Cooper said: “There are still uncertainties ahead in 2017. A new US president will bring new fiscal and trade policies, while the UK’s intention to trigger Article 50 has the potential to cause further volatility in the pound.
“Nevertheless, economic growth is holding up in the UK, improving in Europe, and may take off in America. Commodity prices are climbing back, providing relief for oil and mining firms.
“We should also see some of those companies that cancelled dividends in recent years reinstate them. However, investors will also be looking for improving profitability from companies, and for this to feed through into underlying dividends, so that improving payouts are more sustainable and less dependent on currency gains.”