UK dividend growth reliant on currency volatility and one-off payments

According to Link, special dividends in the third quarter were almost four times as large for the period as last year.

UK dividend payments grew by a total of 6.9% in the third quarter of 2019, with a total of £25.5 billion paid out.

This was slower than in the first half of the year, with growth in the first and second quarters both coming in at double-digit levels. Even so, the third quarter’s total payments were still a record for the third quarter.

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The figure, however, came primarily from increases in special dividends and the weakness of the pound.

According to Link, special dividends in the third quarter were almost four times as large for the period as last year, adding 7 percentage points to headline growth in the quarter. Stripping out special dividends paints a different picture, with growth coming in at a negative 0.2%.

The increase in special dividends was driven largely by mining companies. Both BHP and Rio Tinto surprised the market by declaring another special dividend payment. Mining companies prefer to increase their dividends in profitable periods as one off “special” payment rather than change dividend policy, owing to the cyclical nature of mining.

Cineworld also paid a large dividend with cash from the sale of a collection of its US cinemas. Taylor Wimpey also paid a special dividend.

The latest figures, however, confirmed that the UK is on track to see the second-highest special dividend payments on record in 2019, with the expected total being £11 billion for the year.

UK dividend growth in the third quarter was also inflated due to the weakness of the pound. Without the fluctuation, says Link, payments fell by almost 3% in the third quarter, the worst performance for three years.

Among the top 100 companies, the weakness of dividend growth was particularly apparent after currency fluctuations were accounted for, with payouts down on a year-on-year basis. This was driven primarily by Vodafone’s deep dividend cut.

Commenting on the report, Michael Kempe, chief operating officer of Link Market Services, said: “The predicted economic slowdown is beginning to show as UK plc payouts falter after years of solid growth despite the gloss of huge special dividends and eye-catching FX effects. As the world economy falters and the UK remains mired in its political crisis, we are witnessing a significant slowdown in UK plc’s dividend growth rate.”

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