Dividends from UK shares are rising at an extraordinary rate. The quarterly ‘UK Dividend Monitor’ report from Capita Asset Services paints a very rosy picture for investors looking for income from UK shares.
This does not constitute advice and advice should be sought in all instances before acting on it.
According to Capita in the third quarter of 2017:
- Total dividends from UK shares were 14.3% higher than in the third quarter of 2016.
- Special (one-off) dividends rose by two fifths, year-on-year.
- Stripping out the special payments, underlying (regular) dividends were 13.2% higher.
- Whereas sterling’s weakness boosted dividend increases in the first two quarters, it made virtually no difference in the latest figures. Adjusted for currency, underlying dividends were up 12.9%, the fastest quarterly rise since 2012.
Dividend payments this year are expected to smash the previous annual record set in 2014.
In July, Capita projected 2017 annual underlying dividend growth would be around 7.4%. They have now increased this to 11.1%. What has caused this increase? It has partly been bolstered by a £1.5 billion spurge in special dividends. For example, catering company, Compass paid out a staggering £960 million to its shareholders.
Special dividends explained
A special dividend can also be referred to as an extra dividend. According to InvestingAnswers, “a special dividend is a one-off distribution of earnings to its shareholders, which have been created from exceptional trading profits during a given quarter.”
InvestingAnswers goes on to explain that special dividends are usually paid in cash and tend to be greater than dividends paid out through the companies’ standard dividend.
Special dividends are sometimes used as a way for the company to demonstrate ‘goodwill’ to its shareholders and to encourage loyalty.
By giving away special dividends companies are not under pressure to increase their standard dividend payments in an unstable economic environment.
Underlying dividends
Underlying dividends stood at £17 billion in the third quarter of 2017. Two-thirds of this came from the mining sector, which has seen a resurgence following a period of sustained decline.
The future
However, moving into 2018, the growth in dividends is not expected to be as dramatic, as gains from exchange rates will not be there.
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