Monday, 20 October 2014

Capita Dividend Monitor - Q3 2014

As an investor mainly focussed on dividend income, I like to keep up to date with UK market trends and statistics relating to dividends. The quarterly reports from Capita are an excellent resource.

Capita Dividend Monitor have recently issued their report for Q3 of 2014. The report compares dividends paid by UK companies and also looks at predictions for the full year.

Leaving aside the one-off effect of the Vodafone distribution earlier this year, headline dividends have advanced 6% including a number of special dividend payments, with underlying dividends ahead 3% year on year. As we know, dividends in the current climate have been held back by the strength of the USD v GBP. The pound has dropped 10c against the dollar over the past 3 months. Amongst the top payers for example, Astrazeneca and HSBC saw a 10% and 9% negative impact year on year respectively.

Dividends from companies outside the FTSE 100 have shown some promise this year. The smaller but faster growing constituents from the FTSE 250 increased payouts 7.6%. However, mid cap dividends only account for 9.3% of the UK's dividend total. The vast bulk of dividends are paid by the 'big guns' of the FTSE 100 - indeed, some 31% is paid by just FIVE companies.

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The forecast for the full year has been revised down from £101.8bn to £97.1bn (headline) The main reduction is a figure of £3.5bn being knocked off the previous forecast due to negative currency exchange rates. The underlying level is forecast at £79.3bn, 1.7% ahead of the previous year. The current forecast for 2015 is a lttle more promising with the prospect of an increase in underlying dividends of 5.5% to £83.7bn.

The prospective yield on all equities for 2014 has been reduced to 3.9% however they still remain the highest source of income across all main asset classes. The 10 yr benchmark for UK gilts is now down from 2.75% to 2.45%, property net of maintenance is 3.5% and instant access cash currently returns 1.5%

Although the rising value of the GBP is dampening down the dividend returns this year, it must be remembered that dividends have been bolstered by the falling pound since 2008 and this has been a benefit to UK shareholders. These things have  a way of balancing out over the longer term. I will be very happy if my dividend income rises 6% over the coming year and inflation remains at current levels of around 2%!

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