Dividends warning as Q3 payouts hit by slowing growth

● Underlying figure worst for three years ● But UK plc still forecast to yield 4.4%

A bumper period of dividend growth for UK investors could be coming to an end as figures out today show underlying payouts fell in the third quarter of the year.

Although total dividends to investors from quoted companies rose by 6.9 per cent during the period to £35.5 billion, the headline figure was boosted by exceptionally large special dividends and exchange-rate gains.

The underlying figure saw a fall of 3 per cent on a constant currency basis, the worst quarterly performance for three years, according to the UK Dividend Monitor from Link Group.

A separate report out today reported record global corporate profits and dividends but also warned investors should be wary of the impact of a global economic downturn.

The Link report said the best performing UK sectors included banking, where RBS alone has paid out a total of £3bn in 2019.

But telecoms and retail suffered from big dividend cuts from household names including Vodafone, which slashed its dividend by threefifths.

Major names including Marks & Spencer, Superdry and Dixons Carphone also saw cuts to payouts.

The report forecasts that UK plc will yield 4.4 per cent over the next 12 months, close to historic highs. Underlying dividends are set to rise 3.3 per cent to £99.1bn, although almost all this increase is down to exchange rates

Michael Kempe, chief operating officer of Link Market Services, said: “The predicted economic slowdown is beginning to show as UK plc payouts falter after years of solid growth despite the gloss of huge special dividends and eye-catching foreign exchange effects.

“As the world economy falters and the UK remains mired in its political crisis, we are witnessing a significant slowdown in UK plc’s dividend growth rate. This is inevitable, given the increasingly lacklustre performance companies are putting in on earnings. Unlike 2016, it is not due to problems in just one sector; it is a more generalised slowdown.”

Kempe said 2019 “will almost certainly prove a temporary high-water mark for UK dividends”.

Research published today by the Henderson International Income Trust found profits from the world’s largest companies are rising strongly but warned investors need to be wary of attractive dividend yields amid fears of a global slowdown.

Global profits soared 7.2 per cent to a record £2.3 trillion last year and are set to rise even higher this year, according to the research.

Dividends are rising even faster than profits, up 9.2 per cent to just over £1tn.

Butthereport’sauthorswarn that, while dividend yields are “very attractive” compared with current interest rates, investors need to tread carefully and that payouts from a fifth of companies are “potentially unsustainable”.