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Dividends to grow at fastest for three years, research predicts

Published: 14:35 20 Apr 2015 BST

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Dividends paid to FTSE 350 stockholders totalled £14.75bn in this year’s first quarter; while pay-outs for the whole of 2015 are set to hit the highest level in three years.

That’s according to Capita Asset Services, which said the underlying trend for dividends from companies in the first quarter of the year "got off to a strong start".

On an underlying basis, Capita has revised its forecast up by £500mln, with dividends forecast to reach £84.1bn, the highest rate of growth since 2012.

A decent first quarter was put down to the recovering UK economy and the strength of the US dollar - 53 companies in the FTSE 350 denominate their dividends in the currency.

The £14.75bln figure was 52% lower on a year ago as last year’s figures were skewed by Vodafone's (LON:VOD) world record £15.9bln special dividend following the disposal of its stake it US rival Verizon.

The figure was also affected by Barclays (LON:BARC) delaying its final dividend by five days, which shifted £630mln of first quarter payouts into the second quarter.

On a sector level, growth in the first quarter was broad-based. 

The oil sector saw dividend pay-outs increased by 16%, principally due to positive currency effects, and partly due to Shell and BP increasing their dividend pay-out in dollar terms.

Mining and chemicals did well, with double digit growth rates, but domestically orientated sectors had a more consistently strong performance. 

Construction, general retailers, household goods, media, telecoms, property, and technology sectors all posted double digit growth.

Healthcare and utilities dividends underperformed.

Justin Cooper, chief executive of Shareholder Solutions - part of Capita Asset Services, said: "2015 is off to a flying start for income investors, boding well for the full year.

"At last we will see strong growth this year, after a disappointing couple of years for dividend growth."

“Challenges remain, not least in the supermarket sector, where the pay-outs are vulnerable. Shareholders are bearing the cost of the sector’s price war.

Tesco’s (LON:TSCO) cuts could cost investors up to £1bn. But the reinstatement of Lloyds Bank’s (LON:LLOY) dividend will give investors optimism, marking a milestone for the recovery of the market.”

Capita expects FTSE 100 companies to yield their shareholders a little over 4.2% over the next twelve months, while the mid cap index will yield 2.7%. Overall, equities will yield 4.1% this year.

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