Monday 23 January 2017 7:00 am

Weak sterling and higher special dividends boosted quarterly payments to record levels

Dividend payments jumped to a record £16.6bn in total during the final quarter of last year, figures show this morning – up 11.7 per cent year-on-year.

The rise lifted full-year totals 6.6 per cent higher than the previous year.

Capita Dividend Monitor data showed this growth wasn't driven by large increases to regular dividends, but by a combination of weak sterling and higher special dividends.

Of the £5.2bn increase to 2016's dividends, £4.8bn came as a result of a weak pound. Two-fifths of UK dividends are denominated in dollars and euros, which, after the Brexit vote, were translated at more favourable exchange rates.

Special dividends more than doubled year-on-year, sending fourth-quarter totals soaring to £6.1bn, adding £3.3bn extra to the headline total.

Underlying dividends, which exclude special payments, rose 2.6 per cent for the full year, reaching £78.5bn. Without the gains from exchange rates, underlying dividends would have fallen 3.7 per cent year-on-year, suggesting companies have faced a tough time improving profitability, and subsequently growing or maintaining payouts.

Across the sectors, 26 out of 39 paid out more in 2016 than in 2015, which is below the average of 32 since the financial crisis. Mining dividends halved year-on-year to £3.3bn as cancellations took their toll on big companies, while consumer goods dividends increased 5.1 per cent and financials raised payouts 7.8 per cent.

For 2017, Capita Asset Services forecasts dividends will rise 7.5 per cent, or £5.9bn, to £84.4bn on an underlying basis. Again, this will be caused by the effect of the weaker pound.

Special dividends are unlikely to grow by the same rate this year, causing headline dividends to grow more slowly. Capita predicts a rise of 3.3 per cent for a total of £87.5bn.

Justin Cooper, chief executive of shareholder solutions, part of Capita Asset Services, said while political uncertainties lie ahead, economic growth is holding up, commodity prices are climbing back and some companies that cancelled dividends will be reinstating them.

"However, investors will also be looking for improving profitability from companies, and for this to feed through into underlying dividends, so that improving payouts are more sustainable and less dependent on currency gains," he added.