UK dividend growth slows again – Alex Crooke, head of Global Equity Income at Henderson, September 2016

Whilst UK dividends have been given a short-term boost by the falling pound, the underlying growth rate is dropping further behind the world’s other developed markets, according to the Henderson Global Dividend Index*.

In underlying terms, UK dividends fell 3.3%* year-on-year in the second quarter, the weakest performance in the G7. Standard Chartered, Anglo American, Barclays and WM Morrison were among those who made steep cuts.

Dividend performance in the US was better - up 4.6%* - but the rate there has also started to slow, reflecting subdued profit expansion and the impact of the strong dollar.

Dividend growth in Europe was strong at 4.1%*, with the Netherlands and France leading the way. Germany's total dividends were hurt by Volkswagen cutting its payout by 98%* on the back of the emission scandal and Deutsche Bank cancelling its payment altogether.

Japanese dividends fell 0.8%* as company earnings were depressed by a strengthening yen. Toyota Motor was a case in point, reducing its final dividend by 12%* in yen terms and citing the impact of the yen on its profits. Dividends in emerging markets fell sharply year-on-year, but performed better in Asia Pacific.

The second half of the year is likely to be weaker than the first, partly because seasonal patterns mean the emphasis shifts slightly towards those parts of the world where dividends are growing more slowly, like emerging markets, Australia, and the UK. As a result of the Q2 trends, Henderson has reduced its global forecast for the full year to a headline expansion 1.4%*.

Alex Crooke, Head of Global Equity Income at Henderson Global Investors said: “Profit growth remains under pressure in the UK, limiting the potential for companies to increase dividends. Moreover, since the UK’s decision to leave the EU at the end of June, the pound has fallen further on the foreign exchange markets, extending a descent that began in the months running up to the referendum.

“For UK-based investors, of course, the much weaker pound means dividend income coming from abroad is suddenly worth a lot more. Looking globally for income has not only provided UK investors with the opportunity to invest from a larger selection of companies with faster growing dividends than the UK can muster at present, it has also protected them in the short term from the impact of the Brexit vote.

“The shifting fortunes of different parts of the world highlight the value of taking a global approach to income investing. As the US engine of global dividends is slowing down, so Europe is showing encouraging growth.”