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Dividend forecasts fall as Q1 payments rise 15.7%

17 Apr 2019

London-listed companies returned a record amount of cash to shareholders in the first quarter, according to Link Asset Services.

Investors received £19.7bn in the opening three months of 2019, a 15.7% jump on the amount paid during the same period a year earlier.

This rise was largely the result of favourable exchange rates, which contributed to more than 60% of the growth. Special dividends also played a part. Mining giant BHP returned £1.7bn on top of its regular dividend after selling its US shale oil interests.

If special payments are removed from the analysis, dividends grew only 5.5% to £17.6bn during the quarter.

Almost 40% of the dividends paid from companies listed in London came from pharmaceuticals and oil companies, which benefited from exchange rate movements.

UK equities yield 4.6%, excluding special payments, which is slightly below the 10-year high that it reached in January.

However, lower growth in corporate earnings has led Link to revise its yield forecasts for 2019 to 3.9% down from the 5.3% it set in January. This means that it expects the boardrooms of listed companies in the UK to give investors £99.7bn from their profits this year, which would make it a record year.

Once specials are considered, the headline dividend total for the year rises to £106.1bn, Link predicts, 6.3% higher than was returned to shareholders in 2018.

Link’s chief operating officer, Michael Kempe, said that the first quarter is usually the warm-up act for dividends, but this year it has put in a stellar performance. “Miners are taking centre stage with large special dividends, but these reflect restructuring and asset sales rather than trading profits; underlying growth from this sector is now much more normal after grabbing the headlines over the past couple of years.”

He added that despite the uncertainty hitting markets, Link is confident that 2019 “will show good growth, even if Q1 was, in truth, a touch weaker than we expected on an underlying basis”.

“Moreover, the yield on UK shares is a third higher than its long-run average and suggests equities are still extremely cheap, both in comparison to other countries and to other asset classes.

“Pay-outs would need to fall far more than they did even during the financial crisis to bring the UK equity yield back into line with the long-run average, and we just don’t see that happening,” Kempe said.

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