Post-Brexit sterling depreciation is set to boost headline dividends by £4.3bn to a total of £82.5bn this year with investors in multinational companies the main beneficiaries, according to the latest Capita Asset Services Dividend Monitor.
The report notes that as around one-fifth of UK-listed companies pay dividends in dollars or euro, the exchange rate is expected to gain just over £2.8bn in the second half of the year on top of the £1.4bn already booked in the first half of the year when the pound had already slumped ahead of the vote.
While Brexit was seen to be positive for multinationals with overseas earnings, dividends from domestically-focussed companies could be hit by an economic slowdown from Brexit.
The report says: “[Brexit] has dramatically changed the picture for UK dividends in 2016. Even though steep cuts are still coming through from a number of large mining concerns, banks and others, overall, they are being largely offset by the much weaker pound.”
Additionally, special dividend payouts quadrupled compared to the same quarter last year to £3.5bn with a record number of 22 companies, the report says.
Intercontinental Hotels was the highest paying company, distributing £1bn in special dividends after selling hotels in Paris and Hong Kong, closely followed by pharma giant GlaxoSmithKline, which paid out £970m following an asset swap with Novartis.
However, the report warns the future outlook for dividends performance is expected to be “less exciting”.
Dividends, excluding special payouts, fell 2.7 per cent to £25.2bn in the second quarter year on year and could struggle in the coming years if the economy gets negatively hit by the UK’s exit from the EU especially for profits of mid-cap firms, the report says.
Capita’s head of shareholder solutions Justin Cooper says: “The Brexit vote has completely changed the picture for dividends this year and beyond.”
“In the short term, investment and consumption will be depressed while the country waits for a response from the new government, and for a Brexit timetable to emerge. Dividends will suffer from any slowdown in economic growth, particularly among the UK’s mid-cap companies, though a persistently weak exchange rate will cushion sterling investors in the UK’s large multinationals.”