Interactive Investor

UK lags global dividend surge

24th May 2016 11:55

Faith Glasgow from interactive investor

A global surge in dividend payouts, up 2.2% on a headline basis over the first quarter of 2016, highlights the challenging situation in the UK.

The findings were detailed in Henderson's latest quarterly Global Dividend Index.

Henderson also points out that over this timeframe, exchange rate movements have been much less significant and have therefore generally had only a minor impact on dividends worldwide in US dollar terms.

Strong growth in special dividends - which have almost doubled over the past 12 months - has also helped boost global headline growth.

The survey found that underlying growth, taking into account exchange rate shifts, special dividends and index changes, stood at 3.1%.

Dividend growth was spearheaded by Japan (which saw headline growth of 21.1%, on the back of strong underlying growth of over 10%, plus yen strength), North America (with headline growth of 6.3%) and Europe (where headline growth was 10.8%, its strongest since early 2014).

Europe's strong performance was helped by Swiss pharmaceutical firms, which accounted for a third of the European total; one-off dividend payments were up, and the impact of currency volatility was at its lowest since 2014. Henderson sees the European outlook for the second quarter as "promising".

In contrast, payouts from the UK, Australia and emerging markets suffered, though India remains a bright spot.

UK dividends fell by 5% to $16.4 billion, largely reflecting the fall of sterling against the dollar. Underlying growth was a sluggish 0.7%.

The outlook remains unpromising as the impact of major cuts from leading blue-chip payers, mainly banks and miners, takes effect. They include BHP, Rio Tinto, Glencore, Standard Chartered, Barclays, Morrisons and Rolls Royce.

Indeed, the UK relative slowdown has had a significant longer-term impact. Since 2009, UK dividends have grown by a total of 44%, well behind the global average of 59%. Only Europe, held back by exchange rate weakness, has shown slower growth of 14% over that timeframe.

Henderson expects global dividends to rise by 3.9%, to $1.18 trillion, in 2016.

"UK income investors are heavily dependent on oil, banks and mining companies, which together make up almost half of the country's equity income. Now, the sharp downturn in the mining sector is hitting shareholder income hard," says Alex Crooke, head of global equity income at Henderson.

"It's times like these that demonstrate the risks to investors of such a heavy reliance on just one or two sectors. Thinking globally really helps diversify this risk away, not only from a sector perspective but from a geographic one too."

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