Dividends only inch up in Q1 due to weak dollar

● Oil giants BP and Shell keep powder dry on higher payouts

0 Almost a quarter of the first-quarter dividend total was paid by the oil majors Shell and BP UK dividends rose a “disappointing” 1.2 per cent yearon-year in the first quarter of 2018, hit by a sharply weaker US dollar in which more than two-fifths of Q1 payouts are made.

The first three months of the year are also dominated by some large companies showing no dividend growth, especially in the oil and drug sectors, says a report out today.

The latest UK Dividend Monitor from Link Asset Services, which administers £600 billion of assets, says the headline total rose 7.6 per cent to £16.7 billion.

But the headline figure was distorted by a £1bn boost from British American Tobacco (BAT), which switched to quarterly payouts as part of its takeover of US tobacco giant Reynolds. “This effect, which gave an artificial boost to the total dividends paid out by UK plc, will reverse in Q2,” the report said.

“Investors should not be worried. The stronger pound masked a solid performance from UK plc on a constantcurrency basis, and Link still expects UK dividends to just beat their 2017 record this year.”

Almost a quarter of the Q1 total was paid by the oil majors, Shell and BP. “Higher oil prices have not yet led to higher payouts from these companies, however,” Link added.

“Both had maintained their dividends through the oil slump even in the face of plunging profits, so are not now increasing as the picture stabilizes. Even so, once the stronger pound was factored in, the sterling total from the oil sector was 15.3 per cent lower year-on-year.”

Justin Cooper, chief executive of Link Market Services, part of Link Asset, said: “Dividend growth in the first quarter was a bit disappointing when excluding one-offs. M&A activity has also proven to be a double-edged sword for dividends.

“While Sky paid its longawaited special divi ahead of its likely takeover agreement with 21st Century Fox, consolidation has depressed dividends by a number of mid-cap firms. Investors shouldn’t be worried, however. If you take exchange rates out of the picture, dividend growth will continue in 2018 only a little slower than last year.”