Capita predicts UK dividend growth of 5.7 per cent in 2015

Weak oil prices and a strong dollar to boost UK dividend growth, says Capita

Capita predicts UK dividend growth of 5.7 per cent in 2015

Underlying dividend payments, excluding special dividends, for UK quoted companies are expected to show growth of 5.7% in 2015, compared with 1.4% in 2014.

This is according to the quarterly Capita UK Dividend Monitor from Capita Asset Services, which analyses the latest trends in total gross UK dividend payments (before 10% withholding tax).

Underlying dividends in 2014 were £79.1bn year-on year. According to Capita: ‘This was a very rate of growth by historical standards, with only 2009 and 2010 performing worse, due to the global recession and the effect of BP’s dividend cancellation respectively.”

In 2015, it expects a strong US dollar and weak oil prices to help boost underlying dividend growth to 5.7%. Interestingly, 40% of UK dividends are from companies that report in US dollars.

Capita does not think a weaker oil price will lead to a cut in payouts from Shell and BP, two of the powerhouses of UK dividends. In the report, it commented: “In 2009, when the oil price was last at this level, Shell continued to increase its US dollar denominated payout, while BP held its one flat. Unless the oil price crashes a lot further, we expect them to at least hold their US dollar payouts steady.”

Iain Armstrong, equity analyst at wealth manager Brewin Dolphin, commented: “We do not believe that the Royal Dutch Shell or BP will reduce their dividends in US dollars. Therefore, UK shareholders can expect a significant increase in sterling terms based on the current exchange rate.

“We agree with management at both companies who believe that the dividend is sacrosanct. Therefore, they will if necessary cut capex deeper, increase debt or accelerate their asset disposal programmes rather than overreact to what they consider to be an unsustainably low oil price. In this respect , we think that the three year and possibly the five year oil price futures are more relevant. The three year Brent future has fallen from just over $100 at the end of June 2014 to around $70, compared to the near 60% fall in the spot price.”



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Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.