This year is set to be the worst for dividends in six years despite growth of 6.4 per cent in the first quarter year-on-year, the latest dividend monitor from Capita Asset Services has found.
The total paid out to investors reached £14.2bn in the first quarter, though it will be offset over coming months by £2.7bn of dividend cuts announced by companies already this year.
The slump in the oil price has meant oil and commodity companies have been some of the quickest to pull the plug on dividends.
The pace of cuts means that 2016 is set to be the first year total dividends have declined since 2010. For the full year, Capita has reduced its forecast for underlying dividends by £200m to £75bn, a decline of 1.7 per cent.
High payouts so far this year have been boosted by strong special dividends, masking slower underlying growth of just 1.3 per cent.
Including special payments, headline dividends are set to fall 1.5 per cent to £78bn, in line with Capita’s previous forecast.
Shell, the UK’s largest dividend payer, provided more positive news after its takeover of BG Group, saying that the merger means it will pay much higher dividends than BG used to.
Over the course of 2016, Shell will now pay £10.4bn at current exchange rates, one third more than in 2015.
Shell will contribute a whopping £1 in every £7.50 of UK dividends in 2016, compared to £1 in £10 in 2015.
Justin Cooper, chief executive of shareholder solutions at Capita, said:
The cuts are focused in a handful of large sectors, and so are relatively easy to avoid. If anything the risks are now finally on the upside. We are unlikely to see much more in the way of big cuts. What’s more, the first quarter figures show that growth is very broadly based with the vast majority of sectors seeing payouts rise, and with sterling so weak, we may see bigger exchange rate gains over the course of the year.
UK equities will yield 3.6 per cent over the next twelve months, with the prospective 12 month yield on the large-cap index standing at 3.8 per cent, and 2.5 per cent for mid-caps.
If Shell, with a yield close to eight per cent were excluded, the top 100 would yield only 3.4 per cent over the next year.
“The volatility of the stock market over the first quarter served to remind investors how important dividends are to their overall return. The absolute level of dividends will be 30 per cent higher than 2007 this year, a real increase of 4.2 per cent, despite the intervening financial crisis and recession,” Cooper added.
The recent weakness in sterling has also added around £350m to the total returned to investors so far this year.
By the end of 2016, £1 trillion will have been paid out to shareholders since the start of the century, the latest data showed.