- UK dividends reach £97.4bn at headline level in 2014, up 21.0%
- Special dividends distort true picture as underlying dividends rise just 1.4%, weakest growth since 2010
- Sterling’s early 2014 strength knocked £3.5bn off full year total
- Q4 shows improvement, with 4.0% underlying growth fastest since Q3 2013 as currency effects start to reverse on strengthening US dollar
- Tesco cancellation of dividend to cost investors £900m, but 2015 outlook is brighter
- Capita revises forecasts headline payouts up to £86.1bn in 2015
- Underlying total to climb by 5.7% to £83.6bn
UK companies paid their shareholders a headline £97.4bn in 2014, 21.0% higher than 2013, although underlying growth was much less impressive, according to the latest UK Dividend Monitor from Capita Asset Services, which provides expert shareholder and corporate administration services.
Headline dividends narrowly exceeded Capita’s forecast of £97.1bn, on the back of stronger special dividends for the year, which totalled £18.3bn. The vast majority was down to Vodafone record special paid in the first quarter, a £15.9bn single payment.
However, on an underlying basis, growth stalled. Excluding special dividends, dividends totalled £79.1bn, an increase of just 1.4% - a real terms decline, and in line with Capita’s forecast of £79.2bn. Just 2009 and 2010 have performed worse on Capita’s records, following the effects of a global recession. Investors’ returns have been hampered by struggling profits among UK plc, particularly the biggest most international ones, and by currency effects. Without the drag of the strong pound, underlying dividends would have been approximately £2.5bn higher, a modest but creditable growth rate of 4.6%.
The final quarter of the year provided more reassuring underlying growth for investors. While headline dividends were slightly down (-0.4% to £15.2bn) thanks to fewer special dividends, underlying growth stood at 4.0%, the fastest rate of increase since Q3 2013. This was triggered by sharp rise of the US dollar against the pound, reversing some the negative effects of the strong pound earlier in the year, and accounting for half of the growth in the quarter.
Capita has increased its 2015 forecast for headline dividends to £86.1bn (with a slightly higher run rate of special dividends), but the effect of Tesco’s cancellation of its £900m final dividend means the underlying forecast is slightly lower, at £83.6bn, an increase of 5.7% compared to 2014. This also allows for the fact that that Vodafone, formerly a top 3 UK payer, is now a much smaller company and likely to drop to fifth place in the rankings in 2015. Stripping out these two factors, Capita predicts growth can top 7% in 2015, thanks in large part to a resurgent dollar. The Eurozone will be an ongoing concern, especially if the euro devalues. UK plc dividends have some sensitivity to the euro, with around 2% of dividends denominated in euros – and one of the top 20 payers, Unilever, reporting in the currency.
On a sector level, Tesco’s cancellation of its 2015 final dividend bucked the trend among consumer services firms, the standout performers of 2014. General retailers and travel firms, buoyed by increased consumer spending power, offset sharply lower dividends from the struggling supermarket sector. Supermarkets will continue to struggle this year. Tesco’s move will cost investors over £900m in 2015, and as result, even if it pays an interim dividend, the company, UK’s 19th largest dividend payer in 2014, is unlikely to make it into the UK’s top 300 payers this year. However, the worst performers overall were commodities companies. Mining firms slashed their payouts 8%, while oil and gas producers cut theirs 1%.
Large-cap companies generally disappointed in 2014, with underlying payouts from the FTSE 100 up just 0.7% on 2013 to £70.0bn. Payouts from mid-caps – who are less exposed to global economic and currency issues – posted growth more than ten times as strong (+8.0%).
The prospective 12 month yield on the UK market is steady at 3.9%. While cash and property yields have not moved since the last quarter, 10-year gilt yields have fallen to 1.6% from 2.45% last quarter. This sharp decline increases the attractiveness of equities for income investors who are prepared to look beyond the volatility in share prices.
Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services said: “2014 saw a record year for dividend payouts, but Vodafone’s special dividend masked stalling growth. Under the bonnet, things did not run as smoothly as the headlines suggest. Sluggish profit growth, a spluttering global economy, and the strength of sterling in the early part of the year conspired to put the brakes on underlying growth.
“The year ahead should provide more reason for optimism among income investors. Certainly, the supermarket sector is under pressure, which has seen Tesco pull its dividend, and global growth is far from secure. Very few UK companies report in euros, so the continuing fall in that currency's value will have little direct impact, though UK firms who do business with Europe will find profitability squeezed which will slow dividend growth. On the positive side, 40% of UK dividends are paid by companies reporting in dollars, so the surging greenback is by far the biggest factor, and will boost payouts, accounting for as much as half the growth we expect from FTSE 100 dividends at current exchange rates. UK income investors are very dependent on the giant oil companies, but given their historic performance when oil prices fall to this level, we don’t anticipate they will reduce payouts. However, a lower oil price will prove good news for many listed UK companies, and in turn, investors, helping growth elsewhere in the market.”
Notes to Editors
The Shareholder solutions arm of Capita is the UK’s largest provider of share registration and value-added services to more than 1,300 companies in the UK, Ireland, Channel Islands and Isle of Man. It is responsible for share registration, corporate actions, share plans, share dealing, and company secretarial support across a base of clients that range from small or recently floated to large multinationals. In 2011 it was appointed to more FTSE companies and managed more IPOs than any other registrar. It is the only registrar that is part of a FTSE 100 organisation, a fact that delivers its clients increased assurance.
Capita plc is the UK’s leading provider of BPO and integrated professional support service solutions. With 46,500 people at more than 350 sites, including 68 business centres across Europe and India, the Group uses its expertise, infrastructure and scale benefits to transform its clients’ services, driving down costs and adding value. Capita is quoted on the London Stock Exchange (CPI.L), and is a constituent of the FTSE 100 with 2011 turnover of £2.9 billion and profit before tax of £385 million. Further information on Capita plc can be found at: http://www.capita.co.uk
Statistical Methodology
Capita analyzed all the dividends paid out on the ordinary shares of companies listed on the UK main market. The research excluded investment companies such as listed investment trusts whose dividends rely on income from equities and bonds. Dividends are calculated gross of 10% withholding tax. The raw dividend data was provided by Exchange Data International. Other data was sourced from the London Stock Exchange.
Exchange Data International is a well-established provider of financial Securities Reference and Corporate Actions Data, specialised in the integration, aggregation and flexible delivery of structured data to facilitate investment research, administration and processing. Based in London, with offices in New York and Mumbai, EDI supports hundreds of investment institutions worldwide. For more information please visit
www.exchange-data.com