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UK dividend growth set to continue
20th May, 2019

Dividend pay-outs from UK companies reached a new first-quarter record during the first three months of 2019, according to Link Asset Services’ most recent Dividend Monitor, rising at an annualised headline rate of 15.7% to £19.7 billion. Underlying dividend growth was slightly weaker than expected, rising by 5.5% to £17.6 billion.

• The yield on UK shares is a third higher than its long-run average,     according to Link
• Tesco doubled its pay-out
• Investor demand for UK equity funds remained poor

Pay-outs rose in the mining and tobacco sectors, whereas pay-outs weakened in the telecommunications and retailing sectors. Mining company BHP paid out a special dividend worth £1.7 billion during the period.

Looking ahead, growth in UK dividend payments is expected to continue this year, despite ongoing uncertainties surrounding Brexit and unease about the global economic outlook, and Link believes that total UK dividend pay-outs this year will top £100 billion for the first time at around £106.1 billion. Link said: “The yield on UK shares is a third higher than its long-run average and suggests equities are still extremely cheap, both in comparison to other countries and to other asset classes”.

The FTSE 100 Index rose by 1.9% during April, while the FTSE 250 Index climbed by 3.7%. Specialist insurer and holiday operator Saga cut its dividend pay-out by more than 50% from 4p per share to 9p per share, having reported a drop-in profits and lower expectations for next year. Meanwhile, supermarket chain Tesco reported a sharp jump in profits and raised its dividend payment from 3p per share to 5.77p per share.

The yield on the FTSE 100 Index eased during April from 4.44% to 4.36%, while the FTSE 250 Index’s yield edged down from 3.19% to 3.15%. In contrast, the benchmark UK government bond yield rose from 0.97% to 1.12%.

The best-performing FTSE sectors over the first four months of the year have been leisure goods, industrial metals & mining, technology hardware & equipment, and food & drug retailers. At the other end of the performance spectrum, the worst-performing sectors included telecommunications and automobiles & parts.

UK funds experienced net retail outflows during March, according to the Investment Association (IA), as nervous investors withdrew their money against an uncertain political backdrop. Investors’ appetite for UK equity funds remained poor during the month: although demand for funds in the UK Smaller Companies sector improved slightly, both the UK Equity Income and UK All Companies sectors experienced substantial outflows.

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