Henderson Global Investors has underlined the role of the pound's collapse in flattering dividend payments, highlighting the UK losing ground to other areas of the world despite its payouts reaching record highs in 2016.
Last month, the quarterly Capita Dividend Monitor report into UK payouts highlighted that dividends had hit their highest level on record in 2016.
Dividends were handed a boost by the 16.5% slump in the pound against the dollar following the Brexit vote. Two-fifths of UK dividends are denominated in dollars and euros and therefore translated at a more favourable exchange rate following sterling's slide.
Take away that fillip, however, and the picture isn't as rosy. Henderson's Global Dividend Index records dividend payments from across the world's markets and flagged the UK as among the worst performing major market for dividends last year.
In dollar terms, headline dividends fell 3.5% to $92.9 billion in 2016, while in underlying terms, excluding the impact of currency, they were down 2.4%.
Emerging markets delivered a worse performance, with dividends down by a fifth in headline terms and by 14.7% on an underlying basis, while Australia also suffered from mining woes, with dividends suffering a headline 10.1% fall, with payouts down 12.2% on an underlying basis.
'The UK is comfortably the second largest payer of dividends in the world, so weakness here made a noticeable impact at the global level,' said Henderson in its report.
The UK market was hit by its sizeable exposure to mining companies, which cut back payouts last year as they grappled with the ongoing impact of collapse of commodity prices, despite their rally from lows in 2016.
Rio Tinto (RIO) scrapped its progressive dividend policy and BHP Billiton (BLT) lowered its payout for the first time in 15 years. Antofagasta (ANTO) cancelled its dividend after a 58% slide in profits and both Glencore (GLEN) and Anglo American (AAL) suspended their dividends payments at the end of 2015.
Cushioning the blow was an unusually high amount of special dividends paid by UK companies.The biggest payer over the year was Intercontinental Hotels (IHG) which gave £1 billion back to investors. Pharmaceutical giant GlaxoSmithKline (GSK) paid out £970 million and broadcaster ITV (ITV) distributed £400 million.
Alex Crooke, Henderson head of global equity income and manager of the Bankers (BNKR ) investment trust, was upbeat about the prospects for UK dividends this year.
‘The UK should see an improvement as the big dividend cuts seen in 2016 are unlikely to be repeated on the same scale,’ he said.
UK investors looking further afield for income would also have been disappointed last year as global dividends rose just 0.1% to reach $1,154 billion.
The decline in dividend payments in the UK and Australia accounted for some of the fall but it wasn’t helped by a sharp slowdown in dividend growth in the US, which accounts for two-fifths of the global total pay-out.
North Amercian company dividends rose just 1.5% to £412.5 billion due to slower profit growth and companies preserving cash to bolster balance sheets – the energy sector showed particular weakness.
Crooke said the outlook for 2017 in terms of global economic growth looks brighter due to president Donald Trump’s plans to cut business taxes and increase spending, both of which could benefit corporate earnings.
He predicted global dividend growth of 3.2% in 2017 to bring the total to $1,158 billion this year.
‘Higher prices for oil and other commodities will lift profits for these dividend stalwarts, and allow payouts in these battered sectors to gradually be restored.’
However, Crooke added that the strong dollar – pushed higher by Trump’s plans to accelerate growth – may well disguise underlying growth in 2017.
‘Over the longer term, exchange rate factors tend to even out allowing underlying growth trends to exert themselves,’ he said.
‘Moreover, even with dollar-based growth temporarily on hold, we mustn’t forget that equities are still generating huge sums of income for investors every year.’