UK equity income managers expect 5% dividend growth in 2013

Leading UK equity income managers are expecting a lower dividend forecast of around 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 are forecasting 5 per cent for dividend growth next year in comparison to between 7 and 10 per cent in 2012.

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

M&G Charifund manager Richard Hughes has 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.

S&P Capital IQ says 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 believe the special dividend has resulted in Vodafone sharres becoming overbought. The pair say the real dividend cover looks poor at 1.1x and expect the firm’s management to change policy.