According to the latest figures, UK dividends rose 14.5% on a headline basis to a record £37.8bn, with exceptionally large special dividends boosting the total. Underlying growth of 5.0% was again weaker than expected from larger and smaller companies alike, while exchange-rate effects accounted for half the underlying growth rate.
Stephen Message, manager of the L&G UK Equity Income Fund, gave his reaction to IFA Magazine: “As ever given the international nature of the UK stock market, the headline rate of dividend growth will be influenced by the strength of Sterling.
“The current weakness in the currency over the past year should mean that all else being equal, UK dividends will be provided with a tailwind in the second half of the year.
“However, investors should be mindful that Sterling is likely to be volatile in the coming months and any improvement in sentiment concerning Brexit negotiations may provide some relief in what feels like an increasingly consensual and crowded trade.
“Overweight sectors in our portfolio include Financials and Commodities. Within Financials we are attracted to the dividend recovery potential in the banking sector following several years of balance sheet repair, whilst in Commodities we have exposure to the diversified miners and oil majors whose renewed focus on cost and capital discipline should lead to solid dividend payouts.
“Areas that we are currently avoiding are Utilities and Pharmaceuticals given our concerns on the sustainability of current dividends in the longer term.”
