Sterling’s devaluation after Brexit is set to boost UK dividends by £4.3bn in 2016, according to new research.
Two-fifths of dividends paid by UK-listed companies are declared in dollars or euros and, because the pound has fallen after the EU referendum result, these payments will be converted at a weaker exchange rate.
Capita Asset Services’ Dividend Monitor expects exchange rate gains of more than £2.8bn in the second half of 2016. This will add to £1.4bn from the first six months of the year, in the build-up to the Brexit vote.
“This has dramatically changed the picture for UK dividends in 2016,” the report said. “Even though steep cuts are still coming through from a number of large mining concerns, banks and others, overall, they are being largely offset by the much weaker pound.”
Investors’ bank balances have also been swelled by a number of large special dividends in the second quarter.
The largest was from Intercontinental Hotels, which distributed £1bn after selling hotels in Paris and Hong Kong. Glaxosmithkline, ITV and Lloyds Bank were also among 22 companies that paid a special dividend in the second quarter, with the total value more than quadrupling year-on-year to £3.5bn.
Justin Cooper, chief executive of shareholder solutions, part of Capita Asset Services said: “The Brexit vote has completely changed the picture for dividends this year and beyond. The timetable for the UK’s departure from the EU, and the manner of its subsequent relationship with it, are crucial to understanding the future for income investors.
“In the short term, investment and consumption will be depressed while the country waits for a response from the new government, and for a Brexit timetable to emerge. Dividends will suffer from any slowdown in economic growth, particularly among the UK’s mid-cap companies, though a persistently weak exchange rate will cushion sterling investors in the UK’s large multinationals.
“The longer term is difficult to predict. It depends on negotiations and implications regarding access to the single market and external trade negotiations with non-EU countries.”