Weak Pound Drives Shareholder Payouts to Near Record High - YAHOO FINANCE
BY Joe Easton
(Bloomberg) -- The falling pound has given a boost to investors in British companies that pay dividends in dollars, with payouts coming close to a record high despite widespread worries over the state of the economy.
UK businesses distributed £37 billion ($44.6 billion) of dividends in the second quarter, up 39% year on year, according to a report from financial information provider Link Administration Holdings Ltd. That’s just shy of the £38.5 billion record set in the second quarter of 2019.
While some of the jump was the result of an unusually high volume of special dividends, as well as “calendar effects” that will disappear over the full year, a slump in the UK currency also provided a boost, says Link. The pound has dropped 11% against the dollar in 2022, putting it among the world’s worst major currency performers.
“Exchange rates are acting powerfully to boost the sterling value of payouts,” Link said in the report. Sterling’s fall provided a £1.4 billion benefit, the firm calculates.
The report shines a light on the international makeup of Britain’s main stock index. The FTSE 100 has outperformed this year, falling less than 1% compared with a 16% tumble for the FTSE 250 and a 13% drop for the Stoxx 600. The blue-chip index -- whose companies generate three quarters of their revenue abroad -- is more shielded than mid-caps from Britain’s cost-of-living crisis, Brexit-related supply chain problems and uncertainty over the country’s leadership.
Mining and oil companies such as Rio Tinto Plc and Shell Plc -- which have benefited from surging commodities prices -- were a big driver of the increase in dividend payouts, Link said, while cautioning that the effect might fade.
“If mining dividends have indeed now peaked, they will act as a brake on UK dividend growth in the next 12 months, having provided the main engine over the last 24,” it added. Oil and metals prices have trimmed gains in recent weeks as fears of a recession gripped markets.