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Generosity of mining companies driving dividend payments towards annual record

Published: 10:32 23 Oct 2017 BST

Dividend payments
Capita Asset Services reckons the full-year pay-out will smash the previous record from 2014

Dividends paid out by London-listed companies totalled £28.5bn in the third quarter, the third highest quarterly total of all time.

The latest Dividend Monitor from Capita Asset Services reported that UK companies paid out £28.5bn in the three months to the end of September, a record for a third quarter of the calendar year, leaving dividend pay-outs for the whole year “comfortably on track to smash the previous annual record set in 2014”.

Special dividends

The third quarter pay-out total was up 14.3% year-on-year and took the year-to-date total to £77.3bn.

Capita is projecting £16.7bn of dividends in the fourth quarter, up by more than £3bn on its previous projection, which would take the full-year total to £94bn, up 11.1% from the previous year’s £84.7bn and ahead of the current record year, which is 2014 when dividends totalled £88.1bn.

Special dividends made a bigger contribution in the third quarter than in the first half of the year, rising by two-fifths to £1.5bn, most of which was accounted for by a £960mln pay-out from contract caterer Compass Group PLC (LON:CPG).

The third quarter also saw house-builder Taylor Wimpey PLC (LON:TW. announce a special divi for the third year in a row.

Stripping out the special divis, the third quarter pay-out level was 13.2% higher than the same level of 2016. Capita projects the full-year underlying total (i.e. excluding specials) will rise 11.1% to £87.3bn, which will bring a smile to the face of pension fund managers.

Capita pointed out that it is now more than a year since the EU referendum vote caused a collapse in the value of the pound, so in terms of year-on-year comparisons there is no bounce derived from the many blue-chip companies that pay their dividends in dollars; around one-third of UK PLC’s dividends are declared in dollars.

Miners lead the way

Mining companies accounted for two-thirds of the total increase in the third quarter, suggesting the sector has emerged from its crisis period.

“The largest payer is Rio Tinto,” Capita noted.

“It distributed £1.1bn as its profits surged, more than doubling its pay-out from this time last year, and making this its largest ever interim dividend,” the Capita Assets report continued.

“Anglo American also surprised the market, restarting its dividend six months earlier than expected, and distributing £518mln. Profits from iron ore and coal meant the company was well ahead of its debt targets, leaving spare cash for shareholders. Meanwhile, BHP Billiton tripled its pay-out, having generated more cash than in some years of the mining boom, Evraz made its first payment in three years, and all other companies in the sector raised pay-outs year-on-year.”

“Dogs of the Footsie”

The increase in dividend pay-outs has also been good news for the mechanical investment strategy known as the “Dogs of the Footsie”.

READ: Selectively breeding the Dogs of the Footsie

Proactive’s Stockpot team runs a tweaked version of this investment idea, which basically entails once a year investing an equal amount in the 10 highest-yielding FTSE 100 stocks, selling a year later and reinvesting the proceeds using the same criteria.

READ: ‘Dogs of the Footsie’ keep on running

At the end of September, the Proactive Investors version of the “Dogs” portfolio was worth £11,669, up from £10,000 at the start of February, including dividends of  £492.

Currently, the portfolio valuation stands at £11,896, including cash. The annualised dividend yield is currently running at 6.56%, and that’s before the handsome dividends from house-builders Taylor Wimpey and Barratt Developments PLC (LON:BDEV) drop into the coffers next month. In contrast, the yield on the 10-year gilt is currently 1.34%, though that is, of course, guaranteed – unless you take a particularly dim view of the economy in post-Brexit Britain.

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