Businesses sanction ‘supercharged’ dividend payouts

Investors have been boosted by “supercharged” dividend payouts since the start of the year as corporate giants such as Next splash the cash.

But companies are likely to tighten their belts in the months ahead leading to the first annual fall in dividend payouts in six years.

According to the latest UK dividend monitor from Capita Asset Services UK dividends reached £14.2billion in the first quarter of 2016, up 6.4% year on year.

The figures have been buoyed by huge special dividends from the likes of Next and Johnson Matthey which have more than tripled year on year.

However, underlying dividends, which strip out special payments grew just 1.3% to £13.2billion. That is the slowest rate of increase in a year.

Capita warned that the rest of the year will prove less bountiful for investors with many companies announcing dividend cuts of around £2.7billion – most of these will bite in the next few months, adding to the £3.4billion cuts previously announced.

For the full year Capita has reduced its forecast for underlying dividends by £200million to £75billion, a fall of 1.7% and the first drop since 2010.

The study found that mid-cap dividend growth over the first quarter had been particularly strong, up 31% to £1.4billion and boosted by Aberdeen Asset Management moving from the FTSE 100 into the FTSE 250.

Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services said: “It’s obviously disappointing to see UK dividends in decline this year, but investors should not to be too gloomy. The cuts are focused in a handful of large sectors, and so are relatively easy to avoid. If anything the risks are now finally on the upside. We are unlikely to see much more in the way of big cuts. What’s more, the first quarter figures show that growth is very broadly based with the vast majority of sectors seeing payouts rise, and with sterling so weak, we may see bigger exchange rate gains over the course of the year. Moreover, the yield on UK equities is relatively high, as share prices have already factored in where cuts were likely to occur, and in some cases have been pricing expectations of dividend cuts where none are likely.”