Monday 22 July 2019 1:00 am

Dividends hit record but experts warn that underlying picture is worsening

A three-month period of record dividends might normally bring a smile to the face of shareholders, but a spate of huge one-off special payouts has been masking a wider market slowdown over the last quarter.

Temporary boosts from a falling pound and several large special dividends pushed the total sum paid out to a record £37.8bn during the quarter, but underlying dividend growth of five per cent was weaker than expected over the period.

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Large-cap companies which benefited disproportionately from the weaker pound paid out at a much higher rate than their mid- and small-cap counterparts, with special dividends from Rio Tinto, Micro Focus International and RBS all contributing to the headline increase.

Banking sector giants such as Barclays, which handed out its largest dividend since the financial crash, also drove the record rise.

“Investors are being dazzled by eye-catching specials and exchange-rate trimmings, but the UK’s dividend clothes are starting to look a bit threadbare underneath,” said Michael Kempe, chief operating officer of Link Market Services.

He added: “As the world economy slows, and a looming Brexit exacerbates the underperformance of the UK economy, corporate profits are under pressure and that is limiting the scope for dividend growth. Q2 marks both the second upgrade this year to our headline forecast and the second downgrade to our underlying one. The true picture for dividends this year is therefore notably weaker than a first glance might suggest.”

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According to Link Market Services, which produced today’s figures, underlying growth in 2019 is forecasted to be 2.9 per cent when excluding volatile special dividends.

Link has downgraded its forecast for underlying dividends by £500m to £98.7bn.