Business

Monday 18 December 2017

Investors fear loss of dividend flow in UK

Traders work on the floor of the New York Stock Exchange (NYSE)
Traders work on the floor of the New York Stock Exchange (NYSE)

Helen Reid

Attractively high dividend payouts by companies listed on Britain's stock market could be in danger.

The sectors currently delivering the biggest dividends - those that have kept yield-hungry investors in the UK market - are showing signs of strain.

Oil and gas, pharmaceutical and consumer stocks account for nearly half of the UK market's total dividend payouts, Societe Generale data shows.

But factors from industry regulation to currency exchange are feeding concerns that these dividends may erode, causing investors to seek diversification into sectors where payouts may grow.

Many of Britain's major international exporting companies pay dividends in other currencies, so a weaker sterling has flattered income for UK investors and meant payouts rose even when companies kept dividends flat in dollar terms.

This helped the total dividend payout balloon to £33.3bn (€36.9bn) this quarter, up 14.5pc from the same period last year, according to Capita Asset Services data.

But base effects from a weaker sterling will begin to disappear next quarter, with the pound strengthening and the dollar now on the back foot.

Other headwinds materialised when regulatory pressures and corporate events dented stocks in some of the sectors income investors rely on most.

Shares in British American Tobacco and Imperial Brands, two of the most dependable dividend payers, plummeted after US regulators proposed tighter rules on the amount of nicotine in cigarettes.

"Investors are desperate for yield so they pay close attention to anything which could threaten their income stream," said Alex Dryden, global market strategist at JP Morgan Asset Management. "We have been getting a few questions about the ability of these companies to continue to meet lofty dividend expectations." (Reuters)

Irish Independent

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