UK share dividends dry up

Investors in UK-listed shares have been affected by a number of high-profile companies cancelling their dividends.

778-UK-Divs-634

Stockmarket investors make most of their money in the long run by reinvesting dividends. A hundred pounds invested in UK stocks in 1899 would have turned into an inflation-adjusted £28,261 by the end of 2014, assuming all income had been reinvested. Without reinvestment, the £100 would only have grown to £184, says Barclays' latest annual Equity Gilt Study.So it's worth keeping an eye on the outlook for dividends. Unfortunately, that's not especially encouraging right now.

Investors depend "on the fortunes of just a few industries" for their income, says Buttonwood in The Economist. In Britain, France, Germany and Switzerland, more than 70% of all dividends come from just 20 companies. Banks were reliable income sources until the crash. Then miners and oil and gas firms became key. But now the commodities boom has turned to bust, threatening payouts.

This is a particular problem for the commodities-heavy UK stockmarket and is the main reason that dividends across the FTSE 350 are expected to fall this year. Last year, dividends (excluding special payouts) rose by 6.8% to a record £84.6bn, says Capita Asset Services (see chart). This year the figure looks set to fall for the first time since 2010, dropping nearly 1% to £83.8bn. Since October, around £3.4bn of cuts have been announced. Anglo American has cancelled its £900m payout. BHP Billion, which paid out almost £2bn in 2016, looks vulnerable.

Meanwhile, Standard Chartered has axed a £1bn dividend,and the market will lose SABMiller's £1.3bn payout now that it is being taken over. Supermarkets continue to struggle amid a vicious price war. Food and drug retailers paid out 57% less in 2015 than the year before. Meanwhile, the broader economic backdrop seems to have deteriorated. Accountancy firm EY reports that profit warnings from UK-listed companies rose to 313 last year, up from 299 in 2014 and the highest since 449 were issued in 2008.

Because 40% of British dividends are declared in dollars, the pound-dollar exchange rate has a major impact on income. Here at least, there is good news. Last year, the strong dollar added £2.5bn to the annual total, estimates Capita, and currency gains accounted for two-thirds of the growth in FTSE 100 dividends. If the pound maintains its current rate against the dollar, investors can expect a further £1bn income boost in 2016.

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Bad data is driving fear of a second wave of Covid-19
UK Economy

Bad data is driving fear of a second wave of Covid-19

The recent spike in Covid-19 “cases” is very different to the original outbreak, says James Ferguson of MacroStrategy Partnership. The government need…
18 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020