Sterling dive ‘super-charging’ dividends by billions

UK dividends beat analyst expectations in the third quarter, thanks to the fall in sterling, a report reveals.

Payouts rose to £24.9billion – a 1.6 per cent year-on-year increase – with underlying dividends, excluding specials, rising 2.6 per cent year-onyear to £23.9billion, according to Capita Asset Services’ dividend monitor. The biggest impact came from the devaluation of sterling since the Brexit vote in June. The total was also boosted by a final payment from SAB Miller before it was taken over by AB InBev.

Capita revised its forecast for 2016 dividend payouts up to £84.7billion in total, up £2.2billion from its previous prediction. Justin Cooper, chief executive of Shareholder Solutions, part of Capita Asset Services, said: “UK investors have been enjoying extra cash this year, first in the form of unusually large special dividends and then in huge windfalls generated by the effect of sterling’s weakness. In the short term, the pound’s fall is super-charging UK dividends. We estimate that Q4 will see another currency windfall of almost £1.7billion, taking the total for 2016 to over £5.6billion.

“This explains why FTSE100 share prices have been strong so far in the second half of 2016: as the translated sterling value of cash flows earned in foreign currencies rises, so the sterling value of share prices moves upwards in lockstep to reflect the devaluation of the pound.”