UK dividends smashed records in Q2! But is payout growth set to slow?

Dividends moved to new highs in the last quarter. But is this golden age of dividend investing drawing to a close?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Even the quickest glance at dividend forecasts for UK-quoted companies will show just how lucrative stock market investing can be. Shareholder payouts are rocketing right now, and fresh data from Link Group reveals the breakneck pace at which dividends have expanded of late.

According to its latest UK Dividend Monitor, released today, dividends from London-listed companies soared to all-time highs of £37.8bn in the second quarter. This was up 14.5% year-on-year and topped the then-record set two years ago, by a mammoth £4.4bn.

As a consequence of this chubby rise, Link Group upgraded its headline forecasts for the full year by £2.8bn. The annual total for 2019 is now put at £107.4bn, a sum that would represent an annual jump of 7.6% if indeed realised.

Sinking sterling and special dividends support

It’s important not to get carried away by these numbers, though. Sure, dividends may have hit new tops in quarter two but there are some pretty important items that inflated the total. Firstly, exceptionally-large special dividends from the likes of Rio Tinto, Micro Focus International and RBS contributed to that significant headline increase.

And secondly, the weaker-than-expected 5% rise in underlying dividends, to £32.4bn, was delivered mainly by favourable exchange rate movements in recent months. Link Group estimates that around half of the on-year increase was driven by the recent sinking of the pound.

Reflecting this, Link commented that: “Large-cap companies, which benefit disproportionately from the weaker pound, grew their payouts much faster than their mid- and small-cap counterparts,” with FTSE 100 companies growing dividends by 5.7% in underlying terms versus just 0.8% for mid-caps.

Dividend growth in danger?

It’s quite possible that some of the factors that drove dividend growth in quarter two could continue to drive payouts in the months ahead. Take the sterling dive, for example. The UK currency plunged to 27-month lows against the US dollar last week and it’s in danger of falling further as an upcoming Boris Johnson premiership boosts the odds of a no-deal Brexit.

It is perfectly clear, though, that the overall dividend outlook for British stocks is becoming muddier. As chief operating officer of Link Market Services, Michael Kempe, commented: “The UK’s dividend clothes are starting to look a bit threadbare underneath.

“As the world economy slows, and a looming Brexit exacerbates the underperformance of the UK economy, corporate profits are under pressure and that is limiting the scope for dividend growth.” And because of these items, forecasts for underlying payout growth in 2019 were hacked back by £500m to £98.7bn. This would represent annual growth of just 2.9%, two-thirds of which Link Group estimates will be down to exchange rate-related gains.

There are plenty of shares out there where dividends threaten to stagnate or even fall over the next 12 or so. I recently explained why Lloyds could be one such share in danger of slipping, but it’s just one dangerous stock on what is a very long list. With Brexit raging, global indicators sliding, trade tensions persisting, it’s critical to be clued up on what to buy and what to avoid.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Micro Focus. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

High flying easyJet women bring daughters to work to inspire next generation of women in STEM
Investing Articles

In 12 months, a £10,000 investment in easyJet shares could become…

easyJet shares have plunged in value following a profit warning on Thursday (17 July). Can the FTSE 100 travel share…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

This S&P 500 blue chip looks far too cheap to me at $183!

Our writer picks out one high-quality S&P 500 stock that is currently the cheapest among the 'Magnificent 7' group of…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Down 23% today! This one’s stinking out my Stocks and Shares ISA

Our writer's wondering what to do with a problem named Ashtead Technology (LON:AT.) in his Stocks and Shares ISA portfolio.

Read more »

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing Articles

Down over 20%, should I dump this FTSE 100 dividend stock?

Our writer has been loving the passive income this dividend stock has been throwing off. But does the big share…

Read more »

Businesswoman calculating finances in an office
Investing Articles

I’ve just bought this FTSE share…

Our writer explains the thought process that led to him buying this FTSE share. One that’s likely to do well…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Just over £5 now, easyJet’s share price looks cheap to me anywhere under £13.84

easyJet’s share price has dropped recently, which could mean the business is worth less than before. Conversely, it could mean…

Read more »

Trader on video call from his home office
Investing Articles

36% under ‘fair value’ and forecast annual earnings growth of 6%, should investors consider this FTSE 250 stock?  

This FTSE 250 firm is a leader in a growing sector and has secured several new sites to drive its…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

3 UK shares that have recently become takeover targets

Mark Hartley examines why these three UK shares have become takeover targets and could be bought out by rivals in…

Read more »