Because of a lift from the pound hit by Brexit, investors are set to experience a “knockout year” after dividends hit a record of £33.3 billion in the second quarter.
This denotes a growth of 14.5% year on year in headline terms, the best record in over a three-year period, according to Capita Asset Services.
Sterling’s downfall since last year’s EU vote has ended in a substantial boost to dividends, as it means businesses with overseas profits enjoy a currency advantage when exchanging them back into pounds.
On the other hand, high special dividends and strong underlying growth also boosted overall growth, the statement said.
The strong quarter has made Capita Asset Services update its 2017 forecast for headline profits to record £90.6 billion, up by 7% year on year.
Chief executive of Shareholder Solutions, Justin Cooper, part of Capita Asset Services, said: “The gloves came off in the second quarter, as UK plc limbered up to deliver a knockout year in dividends.”
He said that much of these earnings came from large foreign exchange gains, with the weak pound adding £1.2 billion of earnings.
“Exchange rate gains have come not only for big multinationals declaring dividends in foreign currencies, but also for others with overseas operations, or export sales, supercharging their profits and so their dividends,” he said.
Nonetheless, even on a constant-currency basis, underlying improvement was still impressive at 7.8%, still the fastest progress in a two-year period, this is primarily because of a massive haul of special dividends and rising profits.
“Shareholders can be thankful they had punchy special dividends and the weak pound in their corner, but improving profits have also played their part,” Mr Cooper added.
The largest dividends by area came from financials, but the growth was slower than the average, notwithstanding a huge payout from Lloyds Banking Group.
Growth has been particularly strong in the resurgent mining division, while consumer items and housebuilders also did well, with every firm raising its payout.
The statement advised that the second half of the year is expected to deliver smaller growth than the first half. This is largely because the vulnerable pound will have thoroughly washed through the figures now the anniversary of the Brexit vote has passed, it said.
Investors can still look forward to dividends hitting a new high this year, with headline dividends of £90.6 billion, breaking the former record set in 2014.
Mr Cooper said:
“The relative strength of the UK consumer, until recently at least, and surging economic growth abroad has supported stronger dividend growth than we have seen in some time,” he said.
“Most of the excitement for 2017 is now behind us. As we move towards 2018, the extent to which the weakening UK economy continues to diverge from improving trends elsewhere in the world will determine which companies are still able to deliver strong dividend growth.
“The uncertainty over the economy, the Brexit negotiations, and the unstable political situation are key factors to watch.”