Strong dollar hits global income investors

British companies see a slower rate of headline dividend growth in the third quarter on the back of a weaker pound. 

British companies saw a slower rate of headline dividend growth in the third quarter on the back of a stronger US dollar and a weaker pound, according to the latest Janus Henderson Global Dividend Index.

UK-listed companies paid out a total of $33.3 billion worth of dividends to shareholders in the third quarter of 2018. This marked an increase of 3% in headline dividend growth compared to the same quarter in 2017, lagging the overall global rate of 5.1%

This lower level of headline growth was driven number of factors. First of all, growth was suppressed by a change in payments schedule of British American Tobacco. Following the company’s acquisition of Reynolds America, it has moved to a quarterly dividend payment timetable.

Currency movements, in particular the strong US dollar, distorted the figures. Henderson’s index is priced in dollars, so therefore the rising dollar and weaker pound caused a worst rate of return for overseas investors.

However, for UK-based income investors, investing in pounds, this slower level of headline growth is less of a concern.

Indeed, a weaker pound often ends up benefitting UK companies, as they are able to convert their internationally derived earnings in sterling at a better rates. This boost to profits can feed into stronger payments.

At the same time, underlying dividend growth, which strips out exchange rate volatility, one-off special dividends and companies changing their dividend calendar, stood at 11.1%. This beat the global underlying rate of 9.2%.

Driving this underlying growth was the UK’s mining and banking sector.

Among banks, the report notes, Barclays was the largest contributor to dividend growth. Meanwhile BP announced its first dividend increase in dollar terms since 2014, reflective of the strengthening of oil prices (albeit now reversed) in the third quarter.

 

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