Dividends at UK companies reached record levels in the second quarter, but experts are warning that the real picture may not be as rosy as some shareholders think.
UK dividends rose 14.5 per cent to an all-time high of £37.8bn in the second quarter, beating the previous record in 2017 by £4.4bn, according to Link Group’s latest UK Dividend Monitor.
However, underlying growth came in below expectations at 5 per cent, as a weak pound and a number of exceptionally large special dividends helped boost the headline statistics. Exchange rate gains made up almost half the increase.
“The quality of growth was…relatively poor”, Link notes, describing the above factors as a “temporary boost”.
On the back of the data, Link has downgraded its forecast for underlying dividends by £500m to £98.7bn for 2019.
Excluding volatile special dividends, underlying growth is set to be 2.9 per cent.
Link chief operating officer Michael Kempe says: “Investors are being dazzled by eye-catching specials and exchange-rate trimmings, but the UK’s dividend clothes are starting to look a bit threadbare underneath.
“As the world economy slows, and a looming Brexit exacerbates the underperformance of the UK economy, corporate profits are under pressure and that is limiting the scope for dividend growth. Q2 marks both the second upgrade this year to our headline forecast and the second downgrade to our underlying one. The true picture for dividends this year is therefore notably weaker than a first glance might suggest.”