Global investors in UK firms hit by falling dividends and devalued pound

 
William Turvill
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The UK dividend total was hit by cuts from miners such as Glencore (Source: Getty)

Global investors in UK equities saw their dividends plummet in the quarter after the EU referendum thanks to the devaluation of sterling.

In underlying terms, UK dividends were down 2.9 per cent year-on-year in the third quarter, with mining companies such as Glencore and manufacturing group Rolls-Royce making deep cuts.

But while the impact of these cuts was made worse for global investors by the fall of the pound – meaning a fall of 13.9 per cent – UK-based investors benefited.

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The Henderson Global Dividend Index, out today, noted: “For a sterling-based investor… sterling weakness has provided a welcome boost to the level of UK dividend payments (given around 40 per cent of UK dividends are paid in US dollars), helping to offset the impact of some of the cuts mentioned above.”

Elsewhere, the index found global dividends fell four per cent year-on-year to $281.7bn, the weakest performance since the second quarter of 2015.

Henderson has also slightly revised down its dividend forecast for 2016 as a whole. Pay-outs are now expected to grow 0.9 per cent in headline terms, or one per cent in underlying terms, to $1.16 trillion.

The global dividends total was hit by trends from the US, the source of two-fifths of sweeteners.

In America, dividends fell seven per cent to $100.4bn in the third quarter because very large special dividends paid in the same period last year were not repeated. But even on an underlying basis, growth was three per cent, the slowest rate since the financial crisis.

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“Global dividend growth has been lacklustre this year,” said Alex Crooke, head of global equity income at Henderson Global Investors. “The most significant trend is the reduction in US dividend growth, now at its slowest since the index started in 2009.

“However, we do not see this as a major cause for concern as US dividend growth had to return to a more sustainable rate after a couple of years of double-digit expansion.

“The United States has been the engine of global dividends in the last two years, so the slowdown here helps explain the loss of momentum in growth at the global level.

“A strong performance in Europe means underlying growth there may now exceed North America this year, although this has not been enough to offset greater-than-expected weakness elsewhere in the world, for example in China, Australia and the UK.”

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