Weak pound sparks boom for investors

INVESTORS are set to enjoy a “knockout year” after dividends hit an all-time record of £33.3billion in the second quarter, thanks to a lift from the Brexit-hit pound.

This represents a rise of 14.5 per cent year on year in headline terms, the fastest in more than three years, according to Capita Asset Services.

Sterling’s collapse since last year’s EU referendum has resulted in a substantial boost to dividends, as it means firms with overseas earnings enjoy a currency tailwind when converting them back into pounds.

Aside from the weak pound, high special dividends and robust underlying growth also lifted overall growth, the report said.

Such a strong quarter has led Capita Asset Services to upgrade its 2017 forecast for headline dividends to a record £90.6billion, up 7 per cent year on year.

Justin Cooper, chief executive of Shareholder Solutions – part of Capita Asset Services, said: “The gloves came off in the second quarter, as UK plc limbered up to deliver a knockout year in dividends.”

He pointed out that much of these gains came from large foreign exchange gains, with the weak pound adding £1.2billion.

“Exchange rate gains have come not only for big multinationals declaring dividends in foreign currencies, but also for others with overseas operations, or export sales, supercharging their profits and so their dividends,” he said.

However, even on a constantcurrency basis, underlying growth was still impressive at 7.8 per cent, the fastest increase in two years, thanks to a large haul of special dividends and rising profits.

Indeed, special payouts of £4.6billion were the second-highest on record for any quarter.

This was underpinned by a very large payment from National Grid, which accounted for threequarters of the headline growth rate.

“Shareholders can be thankful they had punchy special dividends and the weak pound in their corner, but improving profits have also played their part,” Mr Cooper added.

Growth was particularly strong in the resurgent mining sector, while consumer goods and housebuilders also performed well, with every company raising its payout.

The report cautioned that the second half of the year is likely to show weaker growth than the first half.

Nevertheless, Mr Cooper said that investors can still look forward to dividends hitting a new record this year, with dividends of £90.6billion, smashing the previous record set in 2014.

‘UK plc delivered a knockout year in dividends’