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.
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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.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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