Fund manager warns investors UK dividends "likely to fall"

Jessica Morris
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Some companies are boosting borrowing to fund their dividend payments (Source: Getty)

The managers of the £655m Evenlode Income Fund have warned that UK dividends are "likely to fall over the next year or two".

Hugh Yarrow and Ben Peters said that the referendum vote could make it more difficult for UK domestic sectors - such as banks, commercial properties, construction, house builders and retailers - to sustain or grow dividends.

Read more: Dividend payments outpace profits at FTSE 350 firms for the first time since the recession

But UK-listed multinationals will benefit from the weaker pound if their dividend payments are made in sterling, they wrote in a report released yesterday.

Some cash-strapped firms are borrowing more to fund dividend payments, they added. However, this is unsustainable and could encourage under-investment which would harm long-term growth.

Read more: Direct Line zooms to top of FTSE 100 after generous special dividend

Similarly, businesses which aren't generating enough cash are more likely to conduct rights issues to fund dividend payments which is "like robbing Peter to pay Peter".

It comes as several large firms have cut or cancelled dividends over the last year or so — due to industry difficulties, large capital investment requirements, poor cash generation and high debt levels.

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