Capita UK Dividend Monitor. Issue 25 - April 2016

Transcription

1 Capita UK Dividend Monitor Issue 25 - April 2016

2 Contents Executive summary 3 Introduction 4 Supercharged Q1 sees 2016 dividends off with a bang, but they will finish on a whimper 5 Sectors and companies 8 Top 100 v Mid Yield 13 Outlook 14 Media enquiries: Simon Coughlin Capita press office t: or (out of hours) e: simon.coughlin@capita.co.uk Kirsty Sewter Capita press office t: or (out of hours) e: kirsty.sewter@capita.co.uk For all other enquiries please contact: e: casmarketing@capita.co.uk Capita Asset Services is a trading name of Capita Registrars Limited. Registered office: The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Registered in England and Wales No Produced in association with Teamspirit. Capita Asset Services accepts no responsibility or liability for any actions/decisions under-taken on the basis of this analysis. Teamspirit 2016 UK Dividend Monitor - Issue 25 - Q

3 Executive summary Q1 Overview Q1 saw many high profile dividend cuts announced, though most of their 2.7bn effect will bite later in the year Dividends rose 6.4% (headline) to 14.2bn, thanks to generous special dividends Underlying growth was just 1.3% Sterling weakness against US dollar added 350m, pushing dividend growth into positive territory Sectors & Companies Shell will pay out over 10bn this year, an increase of a third, following its acquisition of BG Group This will add 1.4bn to UK dividends in 2016, even after deducting BG from the pot BHP Billiton dragged down mining dividends, with a 650m cut 35 sectors saw dividends rise against only four that saw them fall the best ratio in almost three years; a few big companies may be cutting dividends, but a broader view shows growth from most quarters Top 5 companies accounted for 53% of the total Q1 payout Top 100 v Mid 250 Top 100 underperforms mid-caps again Mid-cap growth is strong, even adjusting for one-offs Top 100 dividends rose 4.2%, boosted by strong special dividends; they fell on an underlying basis Yield UK equities are set to yield 3.6% over next twelve months Top % v mid-caps 2.5% Excluding Shell, top 100 yield is 3.4% Equity yields remain ahead of other asset classes Outlook Dividend forecast cut 400m (underlying) for 2016 to 75.0bn, down 1.7% year on year First annual decline since 2010 in underlying payments Headline dividends are set to fall 1.5% to 78.0bn Shell s higher payout and exchange rate gains prop up the overall total Top 100 payouts set to fall 3.3% (underlying) while mid-caps should grow 10% But cuts are easy to avoid since they are focused in a few companies And overall, dividends since 2000 are set to top 1 trillion this year UK dividends bn % e Regular Dividends Special Dividends UK Income April 2016 Special dividends bn 4 3.8% 3.3% 3 2.5% 2 1.9% 1.4% 1 Residential property Top 100 Mid 250 *Instant access 10 year UK gilts (source LSL Property savings (source FT) Services ) (source moneyfacts) e UK Dividend Monitor - Issue 25 - Q

4 Introduction A volatile quarter for the stock market saw share prices eventually end up more or less where they started. Nervous investors reacted quickly and sharply to every piece of news, and central banks, concerned about the outlook for growth, pushed interest rates down further, with a number of them venturing into negative territory. The search for yield has therefore lost none of its urgency, with equities providing an obvious option for those prepared to place their capital at greater risk. There has been a lot of bad news on dividends over the course of the quarter, however. We warned in our last report that more high profile dividend cuts were likely, and with a number having been announced since then, we have revised our forecast for the year ahead. The quarterly Capita Asset Services UK Dividend Monitor analyses the latest trends in UK dividend payments, and updates the forecast for the full year. Change to dividend taxation In April 2016, the taxation of dividend income in the UK changed significantly. Before the changes, a notional tax credit of 10% applied. It applied to taxpayers only (such as most individual investors), while non-taxpayers (such as pension funds and shares held in ISAs) could not benefit from it. Until now in the Dividend Monitor, we have calculated dividends to include the value of this credit. This made gross dividends comparable to gross yields on other asset classes. The rules have now changed, abolishing this credit, but making dividends free of tax for individuals up to an annual 5,000 allowance instead, above which they are taxed at a rate linked to the individual s marginal tax rate. There has been no change for non-taxpayers. It is not possible for us to reflect the varying tax position of individuals, and so we have changed the Dividend Monitor to show what used to be called the net dividend. Given that this is a material change we have restated historic years, so that they are shown on the same basis as the new rules. This ensures maximum comparability between different years, and enables readers to see uninterrupted trends. UK Dividend Monitor - Issue 25 - Q

5 Supercharged Q1 sees 2016 dividends off with a bang, but they will finish on a whimper Dividends were at the front of investors minds in the first quarter as a number of the UK s largest listed companies slashed their payouts (see Sectors & Companies). With the bulk of these cuts not biting until later in the year the first quarter saw UK companies pay 14.2bn to their shareholders, an increase of 6.4% compared to the first quarter of Generous special dividends account for most of the increase. They more than tripled year on year to 973m, thanks to 380m from Mediclinic on its acquisition of Al Noor Hospitals, and 307m from Johnson Matthey, which had spare cash following the sale of its gold and silver refining operations, as well as payments from Next, Beazley and others. Q1 saw high profile dividend cuts announced; the effect will bite later in 2016 Dividends rose 6.4% (headline) to 14.2bn A big increase from Shell (see below) also made an important contribution to the strong start to the year. Underlying dividends (which exclude special payments) rose 1.3% or 172m to 13.2bn, the slowest rate of increase in a year. Currency played an important role again too. 6.1bn of the Q1 total was paid in dollars. The 5.7% fall in the pound against the US dollar means investors benefited from a 350m exchange rate gain. Without this gain, dividends would have fallen year on year. Underlying growth was just 1.3% Sterling weakness added 350m, pushing dividend growth into positive territory UK Dividend Monitor - Issue 25 - Q

6 Dividends Paid bn yoy 2009 yoy 2010 yoy 2011 yoy 2012 yoy 2013 yoy 2014 yoy 2015 yoy 2016e yoy Q % % % % % % % % % Q % % % % % % % % Q % % % % % % % % Q % % % % % % % % Full Year % % % % % % % % % Growth in quarterly dividends - year on year Growth in quarterly dividends - year on year % Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 UK Dividend Monitor - Issue 25 - Q

7 Rolling twelve month dividends bn Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q216 Regular Dividends Special Dividends UK dividends bn e Regular Dividends Special Dividends UK Dividend Monitor - Issue 25 - Q

8 Sectors and companies Shell will add 1.4bn to UK dividends in 2016, thanks to BG acquisition 35 sectors saw dividends rise against only four that saw them fall BHP Billiton dragged down mining dividends, with a 650m cut Top 5 companies made up 53% of Q1 dividends Since our January report, BHP, Rio Tinto, Barclays, Rolls Royce and Morrison have joined Glencore, Standard Chartered, and Anglo American in cutting their dividends in There was also concern, in our view unfounded, that lower oil prices would force the oil majors to join other commodity companies and cut their dividends too. It is quite normal for changing fortunes to mean a few companies cut their payout each year. It is, however, unusual that most of these number among the largest payers on the London Stock Exchange. Together they will knock some hefty bricks out of the dividend wall this year. The new cuts announced in Q1 will amount to 2.7bn alone, although, as we have shown, some of these have not yet filtered through into the figures. On the positive side, Shell, the UK s largest dividend payer, completed its acquisition of BG Group, paying partly in newlyissued shares. It immediately paid a dividend to all its shareholders, and at a much higher level than BG used to do. Over the course of 2016, Shell will now pay 10.4bn (at current exchange rates), one third more than in 2015, and 1.4bn more than the sum of Shell s and BG s payments in This is a very significant increase, equivalent to BG increasing its payout by 150%, and goes a long way to offsetting the effect of the cuts outlined above. In the first quarter, this added 516m to the total. The only other industry grouping to see a decline was basic materials. Here dividends fell 43%, as BHP Billiton s 650m cut was too large for Johnson Matthey s special dividend to overcome. BHP s cut knocked it from 6th largest payer this time last year to 14th spot in the rankings. All other industry groupings saw dividends rise. In fact, even at the narrower sector level, only four sectors saw dividends fall (mining, industrial metals, tobacco and food retail, the last of these owing to a lower interim from Sainsbury). With 35 sectors increasing payouts, this was the best ratio of rising v falling dividends in almost three years. The top five companies, whose ranking is unchanged from last year accounted for 53% of all the dividends paid in the first quarter. Shell has put more distance between itself and the number 2 payer, Astrazeneca. For the full year, Shell is now likely to distribute over 60% more than HSBC, the second largest on an annual basis. It is worth noting the increased dependency UK income seekers have on Shell: the company will now account for 1 in every 7.50 paid in the UK, up from 1 in 10 last year. Imperial Brands (formerly ), will reward its shareholders with 150m in higher dividends in 2016 than 2015, following its acquisition of a large portfolio of brands in the US. Having recently switched to making quarterly payments, its first quarter dividend was much lower than its semi-annual final payment made a year ago, but this will even out over the course of the year. This also accounts for the apparent decline in dividends from the consumer goods grouping of companies. In fact, every company in the sector that pays in Q1 increased its dividend. UK Dividend Monitor - Issue 25 - Q

9 Dividends - top companies Rank Q108 Q109 Q110 Q111 Q112 Q113 Q114 Q115 Q116 1 BP BP Astrazeneca 2 BP Cairn Energy Astrazeneca Astrazeneca 3 Astrazeneca Astrazeneca Astrazeneca Astrazeneca BP BP 4 HSBC Holdings HSBC Holdings International Power Astrazeneca BP BP 5 Astrazeneca HSBC Holdings HSBC Holdings HSBC Holdings Subtotal bn % of total dividends % 62% 56% 49% 74% 54% 76% 50% 53% 6 Reed Elsevier Plc BP BHP Billiton BHP Billiton National Grid Plc 7 BHP Billiton BHP Billiton BP BHP Billiton Imperial Brands Plc 8 BHP Billiton BHP Billiton National Grid Plc Barclays National Grid Plc Mediclinic International Plc 9 BT Group BT Group National Grid Plc Barclays National Grid Plc BT Group BT Group 10 BHP Billiton National Grid Plc Unilever Rio Tinto National Grid Plc Unilever Easyjet Compass Group Plc Johnson Matthey 11 National Grid Plc Scottish & Southern Energy Scottish & Southern Energy National Grid Plc Barclays Compass Group Compass Group Unilever Compass Group Plc 12 Scottish & Southern Energy Compass Group BT Group Barclays Unilever SSE Plc. Unilever SSE Plc. Unilever 13 Compass Group Marks & Spencer Group Compass Group Compass Group Compass Group BT Group BT Group Associated British Foods SSE Plc. 14 Marks & Spencer Group Associated British Foods Barclays Unilever SSE Plc. Associated British Foods SSE Plc. Easyjet BHP Billiton 15 Premier Foods British Land Co Cadbury PLC Scottish & Southern Energy BT Group Rolls-Royce Holdings Plc Associated British Foods Rolls-Royce Holdings Plc Easyjet Sub Total bn Top 15 Grand Total % of total dividends % 87% 83% 83% 86% 84% 91% 80% 77% UK Dividend Monitor - Issue 25 - Q

10 Dividends - by industry Dividends by Main Sector m Q108 yoy Q109 yoy Q110 yoy Q111 yoy Q112 yoy Q113 yoy Q114 yoy Q115 yoy Q116 yoy Basic Materials % % 704 0% 1,293 84% % % % 1,082 30% % Consumer Goods Consumer Services 825-9% % 1,091 56% 1,091 0% 1,180 8% 1,308 11% 1,399 7% 1,514 8% 1,207-20% 1, % % % % 1,034 18% 940-9% 1,270 35% 1,238-3% 1,436 16% Financials 1,440 7% 1,867 30% 1,530-18% 1,618 6% 1,857 15% % 1,222 47% % % Health Care 1,679 9% 2,257 34% 2,318 3% 2,455 6% 2,443 0% 2,387-2% 2,401 1% 2,509 5% 2,971 18% Industrials 251 9% 250 0% % % 417 9% 449 8% 481 7% % 625 7% Oil and Gas 2,407 18% 3,564 48% 3,271-8% 2,437-26% 4,709 93% 3,023-36% 2,802-7% 3,250 16% 3,962 22% Technology % 107 6% % 92-24% % 102-7% 103 1% % 129 8% Telecommunications 1,810 7% 1,846 2% 1,705-8% 1,753 3% 3, % 1,869-50% 16, % 1,305-92% 1,355 4% Utilities % 585 9% % 2, % % 920 6% 952 4% 986 3% 998 1% Total 11,445 20% 12,668 11% 12,449-2% 14,220 14% 17,197 21% 12,824-25% 27, % 13,300-52% 14,153 6% Q bn 7.5bn 3.5bn Top 5 Next 10 The rest UK Dividend Monitor - Issue 25 - Q

11 Cyclical v defensive sectors Cyclical Defensive Sub-sector Q m Q m Q v Q Oil & Gas Producers 3,193 3,904 22% Pharmaceuticals & Biotechnology 2,506 2,585 3% Mobile Telecommunications % Travel & Leisure % Gas, Water & Multiutilities % Food Producers % General Retailers % Tobacco % Financial Services % Health Care Equipment & Services % Fixed Line Telecommunications % Chemicals % Support Services % Electricity % Mining % Real Estate Investment Trusts % Aerospace & DefenSe % Nonlife Insurance % Software & Computer Services % Media % Food & Drug Retailers % Household Goods & Home Construction % Real Estate Investment & Services % Industrial Transportation % Oil Equipment, Services & Distribution % Personal Goods % Beverages % Industrial Engineering % Electronic & Electrical Equipment % Construction & Materials % General Industrials % Leisure Goods % Life Insurance 0 5 Technology Hardware & Equipment % Industrial Metals & Mining % UK Dividend Monitor - Issue 25 - Q

12 Top 100 v Mid 250 Top 100 dividend growth has underperformed the mid-caps in nine of the last ten quarters. In theory, growth should indeed be faster at less mature companies, but this trend is more reflective of the negative global factors affecting a few of the UK s largest companies. Mid-cap dividend growth of 31% to 1.4bn was flattered by Aberdeen Asset Management moving from the top 100 to the mid-250 list of companies. Its 158m distribution accounted for half the growth from the 250, and made it comfortably the largest mid-cap payer in Q1. Even so, the vast majority of mid-cap companies increased payouts year on year. Top 100 dividends rose 4.2% to 12.5bn, thanks mainly to the Mediclinic and Johnson Matthey special payments. On an underlying basis they were down 1.7%. Q bn 12.5bn 1.4bn 0.3bn Top 100 underperforms mid-caps again Top 100 Mid 250 The rest Mid-cap growth is strong, even adjusting for one-offs Top 100 v Mid annual growth per quarter Mid 250 Top % Top 100 dividends rose 4.2%, boosted by strong special dividends -60 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q109 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 UK Dividend Monitor - Issue 25 - Q

13 Yield UK equities are set to yield 3.6% over next twelve months Top % v mid-caps 2.5% Excluding Shell, top 100 yield is 3.4% Equity yields remain ahead of other asset classes For the next twelve months, UK equities are set to yield 3.6%. Top 100 companies will yield 3.8%, lower than our forecast in mid-january owing to the additional dividend cuts that have come through and a recovery in share prices. Mid-caps will yield 2.5%, down from 2.6% in January. The weight of Shell, a huge company trading on a very high yield (close to 8%), increases the overall average significantly. If Shell were excluded, the top 100 would yield only 3.4% over the next year. UK Income April % 3.3% 3 There has been little change in the yield of other asset classes, meaning equities still compare favourably. Bond yields are 1.9%, savings income returns 1.4%, while UK property yields 3.3% (net of costs). Note that for all these asset classes, a taxpayer would still have tax to pay on the income, whereas dividends for UK taxpayers are tax-free for the first 5,000. % 2 1 Residential property (source LSL Property Services ) Top % Mid % 1.9% *Instant access 10 year UK gilts savings (source FT) (source moneyfacts) UK Dividend Monitor - Issue 25 - Q

14 Outlook Dividend forecast cut 400m (underlying) for 2016 to 75.0bn, down 1.7% year on year Cuts are focused in a few large companies First annual decline since 2010 in underlying payments Overall, dividends since 2000 are set to top 1 trillion this year We warned in January that 2016 would see underlying dividends fall for the first time since The latest slew of cuts would take our forecast sharply lower still, if it were not for the more generous payout from Shell in particular. Moreover, with 40% of UK dividends declared in dollars, the lower pound will bring UK investors an additional 1bn in currency gains if the exchange rate maintains its current level. We now expect underlying dividends to reach 75.0bn in 2016, down 1.7% year on year. This is 400m lower than our previous estimate. Headline dividends are set to fall 1.5% to 78.0bn, in line with our previous estimate. Top 100 payouts are set to drop 3.3% on an underlying basis this year, on this new forecast. Mid-cap firms are still likely to grow their dividends, but they are too small to make much difference to the total. Beyond 2016, we should expect more variable growth rates each year. This is because many of the big companies that have cut their payouts have also moved away from a progressive dividend policy, where dividends either stay the same or rise every year, regardless of profitability. Instead they have adopted a policy where dividends will rise and fall with their profits. With Shell s growing dominance, risks have also concentrated, though we continue to discount speculation from some commentators that the company will be forced to cut its dividend in 2017, particularly as oil prices have steadied. UK dividends bn e Regular Dividends Special Dividends It s obviously disappointing to see UK dividends in decline this year, but investors should not to be too gloomy. The cuts are focused in a handful of large sectors, and so are relatively easy to avoid. The first quarter figures show that growth is very broadly based with the vast majority of sectors seeing payouts rise. Moreover, the yield on UK equities is relatively high, as share prices have already factored in where cuts were likely to occur, and in some cases have been pricing expectations of dividend cuts where none are likely. Finally, the volatility of the stock market over the first quarter served to remind investors how important dividends are to their overall return. The absolute level of dividends will be 30% higher than 2007 this year, a real increase of 4.2%, despite the intervening financial crisis and recession. The level of share prices may have changed little since the beginning of the century, but by the end of this year, the UK s listed companies will have paid their shareholders around 1 trillion in dividends. Statistical Methodology Capita Asset Services analyzes all the dividends paid out on the ordinary shares of companies listed on the UK Main Market. The research excludes investment companies such as listed investment trusts whose dividends rely on income from equities and bonds. The Dividend Monitor takes no account of taxation on dividends, which varies according to investor circumstances. The raw dividend data was provided by Exchange Data International. Other data was sourced from the London Stock Exchange. UK Dividend Monitor - Issue 25 - Q

15 Media enquiries: Simon Coughlin Capita press office t: or (out of hours) e: Kirsty Sewter Capita press office t: or (out of hours) e: For all other enquiries please contact: e: Capita is a leading UK provider of technology-enabled customer and business process services and integrated professional support services. With 75,000 people at over 500 sites, including 94 business centres across the UK, Europe, India and South Africa, Capita uses its expertise, infrastructure and scale benefits to transform its clients services, driving down costs and adding value. Capita is quoted on the London Stock Exchange (CPI.L), and is a constituent of the FTSE 100 with 2015 revenue of 4.7 billion. Further information on Capita can be found at: Teamspirit 2016 SS15336