British companies paid out a record amount of underlying dividends for the first three months of the year as investors enjoyed a “sugar rush” from sterling’s weakness.
UK-listed companies paid out £15.3bn in underlying dividends in the first quarter, according to Capita Asset Services, on top of another £110m in special dividend payments.
The total value of dividends rose by 9.5 per cent year-on-year to record the highest first-quarter dividend payout since 2014.
The fall in the value of the pound accounted for a large part of the rise in dividends, as overseas earnings rose in sterling terms.
BHP Billiton was the largest single contributor to the rise in dividends, as it returned to form in spectacular fashion.
The FTSE 100-listed miner accounted for 3.5 percentage points of the total growth. Last year it cut its dividend for the first time in 15 years in an effort to protect its credit rating, but rising commodities prices have seen stocks rebound since the start of last year.
FTSE 100 companies benefited disproportionately from the fall in sterling’s value, with more than two-thirds of earnings coming from overseas. Without the exchange rate effect growth in blue-chip dividends stood at less than two per cent.
Capita expects three-quarters of overall 2017 growth in payouts to come from sterling’s weakness, with underlying dividends set to rise by 7.7 per cent compared with last year to reach £84.6bn.
Justin Cooper, chief executive of Capita-owned Shareholder solutions, said: “The sugar rush of exchange rate gains won’t leave investors feeling satisfied for long.
“Only long-term profit growth can deliver sustainable increases in the income from shares. Unfortunately, profit growth has been rather meagre from UK plc of late.”
Further falls in the pound could spur more dividend growth, and the pound remains around 15 per cent below its pre-EU referendum level.
However, most economists believe the pound is more likely to appreciate against the euro rather than fall further. The value of the pound has risen sharply since the end of the first quarter as markets have priced in the prospect of the Conservative party winning a stronger majority at the General Election.