Strong pound brings down dividends

Investors have been enjoying a period of unusually high dividend payouts. But the strong pound threatens to wreck the party.

Studies repeatedly show that reinvested dividends account for the lion's share of long-term returns from equities. So it's good news that British dividend payouts hit an unprecedented £30.7bn in the first quarter, just over double the figure for last year's period, according to the latest annual dividend monitor from Capita Asset Services.

The figure is skewed, however, by a special (one-off) payout of £15.9bn from Vodafone a British record.

Underlying dividends only grew by 3.3%, the smallest rise in two years. That's because British income investors are "unusually exposed" to changes in the exchange rate, says Capita. Big global companies dominate the market.

Nine of the top 20 dividend payers calculate their accounts in dollars, and 40% of overall dividends are denominated in dollars. Sixty-eight of the top 350 companies use dollars or euros.

Sterling has been strong against both currencies over the past year, gaining 12% against the greenback and around 8% against the euro, trimming British investors' income. Three of the five biggest dividend payers, Shell, BP and HSBC, are set for small declines in payouts in sterling terms this year.

The poor backdrop for oil and mining groups, who comprised over 25% of first quarter payouts, is also worth noting.

Capita reckons the sterling's strength could cost investors £3.5bn in dividends this year. The overall outlook for dividends remains positive, with the recovery set to bolster earnings. But sterling has become an increasingly strong headwind.

Recommended

Andrew Hunt: why it's a great time to be a deep value investor
Value investing

Andrew Hunt: why it's a great time to be a deep value investor

Merryn talks to Andrew Hunt, author of Better Value Investing, about his adventures in the market's dark underbelly, looking for the hated and neglec…
22 Oct 2021
Back on track: why you should invest in railways
Share tips

Back on track: why you should invest in railways

Rail transport suffered a severe blow in the pandemic. But while post-Covid-19 working patterns may reduce revenue, trends in technology, long-distanc…
22 Oct 2021
Emerging markets: the Brics never lived up to their promise – but is now the time to buy?
Emerging markets

Emerging markets: the Brics never lived up to their promise – but is now the time to buy?

Twenty years ago hopes were high for Brazil, Russia, India and China – the “Brics” emerging-market economies. But only China has beaten expectations. …
18 Oct 2021
Three dividend stocks from the dynamic Asia/Pacific region
Share tips

Three dividend stocks from the dynamic Asia/Pacific region

Professional investor Sat Duhra of the Henderson Far East Income investment trust highlights three of his favourite stocks.
18 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021