UK dividends payouts rose by an annual rate of 3% in the third quarter, driven by the mining and banking sectors, an investment report revealed on Monday.
According to the Janus Henderson Global Dividend Index, British companies paid US$33.3bn in dividends in the quarter.
The report said headline growth of 3% was suppressed by British American Tobacco plc’s (LON:BATS) switch to quarterly payments following the acquisition of Reynolds American, a 3.6% drop in special dividends and a weaker pound.
On an underlying basis, which strips out special dividends, currency impacts and calendar effects, UK dividends increased 11.1%
Barclays PLC (LON:BARC) was the biggest contributor to dividends in the banking sector, while the quarter also saw the first declared increased from BP PLC (LON:BP) since 2014 in US dollar terms.
Barclays paid an interim dividend of 2.5p per share paid in third quarter, up from 1.0p last year. BP raised its quarterly dividend to 10.25 US cents a share, compared to 10.0 cents last year.
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Across the globe, dividends rose 5.1% on a headline basis to a record of US$354.2bn in the quarter with all-time-high payouts from the US, Canada, Taiwan and India along with a return to growth in China after three years of contraction. Underlying growth was 9.2%.
Janus Henderson raises forecast for underlying dividend growth in 2018
For 2018, Janus Henderson maintained its forecast for headline dividend growth of 8.5% to US$1.359trn. On an underlying basis, however, the asset manager raised its estimate to 8.1% from 7.4%.
“The third quarter exceeded our expectations, but more importantly, the quality of growth was better than we expected. It came despite a negative impact from exchange rate moves and a lower level of special dividends. Importantly, our core underlying measure of growth was strong,” said Ben Lofthouse, head of global equity income at Janus Henderson.
“2018 may be a volatile and more challenging year for stock markets, but steady profit growth means dividends should continue to make steady progress.”
Earnings expectations for 2019 'to come under pressure' but dividends 'remain well supported'
Lofthouse added that expectations for earnings growth in 2019 are beginning to come under pressure given the late stage of the economic cycle.
“That is not to say that profits themselves are set to fall, however, rather that the pace of expansion may now be slower than previously thought,” he said.
“Growing profits and strong cash flow mean that dividends should continue to be well supported and so investors seeking an income from their shares should feel confident about the year ahead.”