UK dividends set to fall in 2016

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Capita is forecasting underlying dividends to fall by 1.7 per cent in 2016 and headline dividends to drop 1.5 per cent, the weakest year for UK dividend growth since 2010.

Overall, UK equities will yield 3.6 per cent over the next 12 months. Excluding Shell, the UK’s largest dividend payer, this would drop to 3.4 per cent.

The fall comes despite a “supercharged” Q1 where strong special dividend payouts saw dividends increase 6.4 per cent year-on-year to £14.2bn.

Underlying dividends are forecast to fall to £75bn and headline dividends are set to fall to £78bn.

Mediclinic, Johnson Matthey, Next and Beazley were among those that delivered special dividends, according to UK Dividend Monitor, which have more than tripled year on year.

However, Capita warned underlying growth was only 1.3 per cent and had been boosted by the weak sterling.

Shell will deliver £10.4bn over the year following the acquisition of BG Group, up a third from 2015. Shell will deliver £1 in every £7.50 paid in dividends in year ahead, Capita said.

Aberdeen Asset Management moving into the mid-250 list of companies from the top 100 saw mid-cap dividend growth of 31 per cent, accounting for half that growth.

Capita said by the end of the year £1tn will have been paid out to shareholders since the beginning of the century.

Justin Cooper, chief executive of Shareholder Solutions at Capita Asset Services, said: “The volatility of the stock market over the first quarter served to remind investors how important dividends are to their overall return.

“The absolute level of dividends will be 30% higher than 2007 this year, a real increase of 4.2%, despite the intervening financial crisis and recession.

“The level of share prices may have changed little since the beginning of the century, but by the end of this year, the UK’s listed companies will have paid their shareholders around £1 trillion in dividends.”

Cooper added that the cuts were focussed in a handful of large sectors and most sectors saw payouts rise.

“Moreover, the yield on UK equities is relatively high, as share prices have already factored in where cuts were likely to occur, and in some cases have been pricing expectations of dividend cuts where none are likely,” Cooper said.