Monthly Market Report - February 2015
28th January 2015With commentary from David Stevenson
The New Year hasn't started well. Investors are in a sour mood, unsettled by plummeting oil prices and worried about what the European Central Bank will do next. Volatility is trending upwards and CDS rates on bank bonds are also slowly inching upwards. By contrast yields on longer duration government bonds are tumbling again, as everyone (and their dog) bets that the global economy is slowing down - and edging ever nearer the abyss of a recession.
In amongst all this top down macroeconomic worrying, it might be worth pausing to consider whether investors are missing some other key trends, not least evidence here in the UK that dividend payouts are likely to improve, albeit slowly in 2015.
Recent numbers from Capita Asset Services UK Dividend Monitor from early January suggest that although 2014 wasn't a great year, dividends did actually grow, just - and should carry on increasing in 2015 once exceptional factors are ignored.
According to Capita by the end of the year, dividend payouts will have fallen in real terms, up just 1.7% year on year to £79.3bn on an underlying basis. FX rates were a big factor in holding back this growth - sterling's gyrations probably knocked at least £3.5 billion off the payout in 2014. According to Justin Cooper, CEO of Shareholder Solutions at Capita Asset Services "looking ahead to next year, the strength of sterling is unlikely to be quite such an issue. The dollar is growing in strength, which bodes well for those reporting in the US currency. A return to significant growth for the US economy is also leading a global recover, which, when combined with ongoing resilience in the UK economy, will help improve dividend payouts."
Obviously there could be some surprises along ht sway, not least from the long list of resources stocks in the FTSE All Share, Capita observes that "commodities companies, and specifically oil and gas giants, are traditionally dividend heavyweights in the UK, accounting for almost 13% of payouts across the market, so if their profits take a battering, they will find it harder to grow their dividends. We would not expect them to cut payouts in dollar terms however. Consumer services saw the best performance in 2014, with a host of special dividends boosting the total, but big retailers such as supermarkets continue to face threats from fresh competition, and dividends from the likes of Tesco certainly have much further to fall"
One specific stock is also likely to have an outsized impact -Vodafone. In 2014 its special dividend of £15,9 billion had a major impact on the £97.1bn headline figures for 2014. According to Capita, that payout won't be matched in 2015, "so we forecast total headlong dividends in 2015 will be £85.8bn, a decline of 11.7% form the 2014 total. However, if we look beyond this one-off payout, the underlying picture is much better. We expect dividends to grow by 5.5% in 2015, to a total of £83.7bn."
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