Managers expect fall in payout growth

Leading UK equity income managers expect a lower dividend forecast of about 5 per cent growth in 2013 as a number of ‘special dividends’ from the likes of Vodafone this year are unlikely to be repeated.

According to research by S&P Capital IQ, many fund managers forecast 5 per cent for dividend growth next year in comparison with between 7 and 10 per cent in 2012.

JOHCM UK Equity Income fund manager Clive Beagles and James Lowen forecast 8-10 per cent growth in 2012, but only 5 per cent in 2013.

BlackRock UK Equity Income fund manager Nick McLeod-Clarke and M&G Charifund manager Richard Hughes have also targeted 5 to 6 per cent growth.

S&P Capital IQ says the issue of dividend growth has been clouded in 2013 because of the strong number of special dividend payments made this year, which are unlikely to repeated.

Itsays Vodafone is key to this debate given that its dividend accounts for 10 per cent of the historical FTSE All-Share dividend yield, much of which came from a special dividend payment passed on from the Verizon business, one of the largest telecommunications companies in the US which Vodafone has a 45 per cent stake in.

Beagles and Lowen say the special dividend has resulted in Vodafone sharres becoming overbought. The pair say the real dividend cover looks poor at 1.1 times and expect the firm’s management to change policy.

McLeod-Clarke has also reduced his holding in Vodafone as he says their core business is weak. He also expects the company to shun paying a special dividends in future in favour of a share buy back.