The plunging value of pound sterling has caused a decline in dividends received by global investors in UK equities based on a recent report. The pound has been falling steadily after the British vote to exit the European Union in June 2016.
According to Henderson Global Dividend Index, dividends in the country went down by 2.9 percent in the third quarter on a year on year basis. The biggest reductions have come from mining companies like Glencore and manufacturing companies such as Rolls-Royce. Total dividends declined by 13.9 percent year-on- year in third quarter reaching $26.3 billion.
UK investors have however benefited since a portion of these dividends are paid out in dollars. The Henderson Global Dividend Index stated that with around 40 percent of UK dividends paid in US dollars, the impact of the overall decline was offset for some UK investors. Henderson has amended its expectations for 2016 dividends stating that payouts will grow by 0.9 percent on headline basis to $1.16 trillion.
Henderson Global Funds
The report has found that globally dividends declined by four percent year-on- year hitting $281.7 billion, the lowest since the second quarter of 2015. The global dividend totals were affected due to a decline in the United States which contributes to two-fifths of all dividend payouts.
In the United States, dividends fell by around seven percent in the third quarter to reach $100.4 billion because a few special and large dividends which were paid last year in the same period were not repeated. But even without these special dividends, the growth was only three percent this quarter, the slowest since the 2008 financial crisis.
Alex Crooke, head of global equity income at Henderson Global Investors said that the key trend in an otherwise lacklustre year for dividends was the decline in U.S. dividend growth. He however said that this trend was not a matter for concern.
In a statement Alex Crooke said,
The most significant trend is the reduction in US dividend growth, now at its slowest since the index started in 2009. However, we do not see this as a major cause for concern as US dividend growth had to return to a more sustainable rate after a couple of years of double-digit expansion.
Crooke stated that the strong performance of European dividends may result in it outperforming North America this year but it may not be enough to counteract weakness in other markets like China and Australia.
The victory of Donald Trump in the U.S. Presidential elections is causing investors to move out of defensive, dividend paying stocks as well as bonds, in the belief that the new administration will boost spending.
