UK dividends hit new record: but it is not all good news for income investors

There has been a growing trend among UK companies to pay special dividends.

UK dividend payments reached a new high in the first quarter of 2019, according to Link Asset Services’ Dividend Monitor.

The total amount paid by UK companies rose to £19.7 billion, representing a growth of 15.7% and the highest first quarter figure on record.

Driving this boost in dividends was a large one-off special dividend, paid by mining giant BHP. In the first quarter of the year, the company paid out a special dividend totalling £1.7 billion – proceeds from selling its US share oil interests.

As we have covered before, there has been a growing trend among UK companies to pay special dividends. In 2018, over 10% of firms on the FTSE 100 made special dividend payments, totalling around £6 billion. This was the highest figure ever paid in special dividends.

Headline dividend payments – that is, dividends including such one-off special payments – are now forecast at £106.1 billion in 2019. That would be the first time the UK has breached the £100 billion barrier, representing 6.3% growth from the previous year.

However, once special dividend are stripped out, the figure becomes less impressive. Excluding special dividends in the first quarter leaves a growth figure of 5.5%, weaker than had been expected from larger and smaller companies.

At the same time, underlying dividend payment expectations for the year stand at £99.7 billion. While still a record, that would give a year-on-year growth figure of 3.9%.

Underlying growth, it should be noted, was also largely driven by currency movements. Both oil and pharmaceuticals were the largest paying sectors, collectively accounting for almost two fifths of the first quarter underlying dividend growth.

However, as Link Asset Services points out, growth in these two sectors was almost entirely due to positive exchange-rate effects.

After both exchange rates effects and special dividends are removed, the top 100 dividend payers rose 2.6%.

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