Kwasi Kwarteng’s mini-budget inspired market chaos and the subsequent dive in the pound has gone some way to ensure that investors holding London-listed shares will receive a £5.7bn dividend boost for 2022.
It seems paradoxical that investors benefit when sterling sinks, but this can be attributed to a few converging factors.
First is that around two-fifths of UK payouts are declared in dollars. There has also been a flight to safe US assets with rising geopolitical uncertainty and the Federal Reserve raising interest rates. Therefore, as the greenback has soared, the translated value of dollar dividends has boomed.
Putting this in context, the £1.9bn exchange-rate gain in the third quarter alone added almost 7% to the payout – second only to the first quarter of 2009, which was during the financial crisis.
These exchange-rate factors also disproportionately benefitted the top 100 listed companies, given the global nature of the blue chips who mainly take their earnings in dollars, which saw their underlying dividends rise 11.2% in the third quarter.
The biggest rises may be left to the year-end.
On current trends, the boost in the fourth quarter is likely to be larger, resulting in an exchange-rate impact for 2022 roughly as big as during the global financial crisis, says Link.
This surge means the 2022 forecast for headline dividends will rise to £97.4bn, up 11%, if the departure of mining firm BHP from The London Stock Exchange is considered.
The question will inevitably turn to what will happen when the dollar eventually gives up some of its gains.
At that point, the dividend picture could dramatically change, with a potentially stronger sterling acting as a drag on dividend growth.
This contributes to the investor picture for 2023 being what we already know it will be: uncertain.
Investors holding London-listed shares will receive a £5.7bn dividend boost for 2022.
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