- Headline dividends rise just 1.2% year on year in Q2, slowest growth in over three years
- Total payout reaches £25.8bn in Q2
- Top 15 payers, who account for 61% of Q2 dividends, see dividends fall 0.8%
- Slow corporate earnings growth and strength of sterling take toll on dividend growth
- Commodity and financial firms, most exposed to currency effects and global headwinds, worst performers in quarter
- Real estate, housebuilders, retailers, and industrials benefit from UK economic improvement
- Forecast for 2014 cut by £900m to £98.5bn, but 2015 likely to see pick-up
UK dividend growth slowed to a crawl in the second quarter, according to the latest UK Dividend Monitor from Capita Asset Services, which provides expert shareholder and corporate administration services. Dividends climbed just 1.2% year on year to £25.8bn, weighed down by falling payouts from the biggest FTSE 100 firms. This was the smallest increase in a quarterly total since 2010 (barring an unusual Q1 2013).
Excluding special dividends, growth was faster, but not by much. The total underlying payout inched forward 3.2% in the second quarter, making it the third weakest rate of growth in three and half years. Special dividends added £705m in the second quarter, less than the £1.2bn total in the same period a year ago.
Sub-inflationary headline level growth has been slowed by falling contributions from the largest constituents of the FTSE 100. Given their size and global operations, these firms are the most exposed to global headwinds and the current strength of the sterling, which have hampered earnings and dividends. This is reflected in a decline in payouts in sterling terms.
Payouts from the top five, who account for 34% of the second quarter’s total, fell 0.3%. Among the top 15, who make up more than three fifths of the UK’s dividends, eight companies saw their payouts decline. Dividends from the top 15 fell 0.8% year on year.
A weak performance from the biggest payers obscured more encouraging growth from those outside the top 15, who have been more heavily impacted by the UK economic recovery. These saw an average increase in dividends of 4.4%, although they only account for two fifths of dividends paid, and this rate of growth is still sluggish by historic standards.
The strength of sterling against the dollar continued to take its toll on the UK’s largest firms, impacting the seven of the top 15 which declare their earnings in dollars. The pound ended the second quarter at US$1.71, having risen 2.6% over the period. By the end of June 2014 it was 12.5% stronger against the dollar compared to a year ago.
Commodity firms and financials felt the brunt of global economic turbulence and currency effects. Mining firms saw their payouts fall 10.1%. Among financials, banks, insurers and financial services firms all paid lower dividends. Companies heavily exposed to the recovering UK economy performed more strongly. Consumer services firms (+18.1%), were buoyed by the travel and leisure sector and general retailers, while housebuilders propelled the household goods and home construction sector up 8.4%. Real estate services firms (which include estate agents) also did well. Riding the wave of the property boom, many were able to raise their dividends, and the sector was boosted by newcomers to the market over the last year.
The ongoing strengthening of the pound and slower earnings momentum has compelled Capita Asset Services to reduce its full year forecast for dividend income. Having cut its forecast by £1.7bn in April, the firm has now reduced it by a further £900m, from £99.4bn to £98.5bn for the year. This implies underlying dividends will climb 3.5% to £80.6bn. Special dividends will leap ahead to £17.9bn (up from £2.4bn last year), as a result of the Vodafone Q1 payout. 2014 will see the slowest growth since 2010, when BP cancelled its payout.
While 12 month yields on equities have dropped to 4.1% following stronger share prices and weakening dividend growth, they remain higher than 10-year gilt yields (2.75%), property rental yields (3.6%) and cash deposits (1.3%).
Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services said: “Investors saw dividend payouts begin the year with a bang thanks to Vodafone’s big special, but just one quarter on, headline growth has become a whimper, as the serious headwinds facing investors reasserted themselves. Given their size and contribution to the total amount paid out, income investors are a hostage to the fortunes of the very biggest listed companies. These global companies have felt the impact of a surging sterling and slowing momentum in the global economy, and struggled to maintain – let alone raise – the amount they are returning to investors. This has dragged down the performance of the whole market.
“We should see a pick-up in 2015. It’s hard to imagine the currency continuing to detract from growth, and if the pound maintains its current level it will only have a small impact in the first half of next year. Equally, if as forecast, the global economy picks up speed, it will be felt right at the top of the FTSE 100, and this should filter its way into investors’ pockets.”
Not company earnings, not data but vaccines now steering investor sentiment
By Marc Jones and Dhara Ranasinghe
LONDON (Reuters) – Forget economic data releases and corporate trading statements — vaccine rollout progress is what fund managers and analysts are watching to gauge which markets may recover quickest from the COVID-19 devastation and to guide their investment decisions.
Consensus is for world economic growth to rebound this year above 5%, while Refinitiv I/B/E/S forecasts that 2021 earnings will expand 38% and 21% in Europe and the United States respectively.
Yet those projections and investment themes hinge almost entirely on how quickly inoculation campaigns progress; new COVID-19 strains and fresh lockdown extensions make official data releases and company profit-loss statements hopelessly out of date for anyone who uses them to guide investment decisions.
“The vaccine race remains the major wild card here. It will shape the outlook and perceptions of global growth leadership in 2021,” said Mark McCormick, head of currency strategy at TD Securities.
“While vaccines could reinforce a more synchronized recovery in the second half (2021), the early numbers reinforce the shifting fundamental between the United States, euro zone and others.”
The question is which country will be first to vaccinate 60%-70% of its population — the threshold generally seen as conferring herd immunity, where factories, bars and hotels can safely reopen. Delays could necessitate more stimulus from governments and central banks.
Patchy vaccine progress has forced some to push back initial estimates of when herd immunity could be reached. Deutsche Bank says late autumn is now more realistic than summer, though it expects the northern hemisphere spring to be a turning point, with 20%-25% of people vaccinated and restrictions slowly being lifted.
But race winners are already becoming evident, above all Israel, where a speedy immunisation campaign has brought a torrent of investment into its markets and pushed the shekel to quarter-century highs.
(Graphic: Vaccinations per 100 people by country, https://fingfx.thomsonreuters.com/gfx/mkt/azgvolalapd/Pasted%20image%201611247476583.png)
SHOT IN THE ARM
Others such as South Africa and Brazil, slower to get off the ground, have been punished by markets.
Britain’s pound meanwhile is at eight-month highs versus the euro which analysts attribute partly to better vaccination prospects; about 5 million people have had their first shot with numbers doubling in the past week.
Shamik Dhar, chief economist at BNY Mellon Investment Management expects double-digit GDP bouncebacks in Britain and the United States but noted sluggish euro zone progress.
“It is harder in the euro zone, the outlook is a bit more cloudy there as it looks like it will take longer to get herd immunity (due to slower vaccine programmes),” he added.
The euro bloc currently lags the likes of Britain and Israel in terms of per capita coverage, leading Germany to extend a hard lockdown until Feb. 14, while France and Netherlands are moving to impose night-time curfews.
Jack Allen-Reynolds, senior European economist at Capital Economics, said the slow vaccine progress and lockdowns had led him to revise down his euro zone 2021 GDP forecasts by a whole percentage point to 4%.
“We assume GDP gets back to pre-pandemic levels around 2022…the general story is that we think the euro zone will recover more slowly than US and UK.”
The United States, which started vaccinating its population last month, is also ahead of most other major economies with its vaccination rollout running at a rate of about 5 per 100.
Deutsche said at current rates 70 million Americans would have been immunised around April, the threshold for protecting the most vulnerable.
Some such as Eric Baurmeister, head of emerging markets fixed income at Morgan Stanley Investment Management, highlight risks to the vaccine trade, noting that markets appear to have more or less priced normality being restored, leaving room for disappointment.
Broadly though the view is that eventually consumers will channel pent-up savings into travel, shopping and entertainment, against a backdrop of abundant stimulus. In the meantime, investors are just trying to capture market moves when lockdowns are eased, said Hans Peterson global head of asset allocation at SEB Investment Management.
“All (market) moves depend now on the lower pace of infections,” Peterson said. “If that reverts, we have to go back to investing in the FAANGS (U.S. tech stocks) for good or for bad.”
(GRAPHIC: Renewed surge in COVID-19 across Europe – https://fingfx.thomsonreuters.com/gfx/mkt/xegvbejqwpq/COVID2101.PNG)
(Reporting by Dhara Ranasinghe and Marc Jones; Additional reporting by Karin Strohecker; Writing by Sujata Rao; Editing by Hugh Lawson)
BlackRock to add bitcoin as eligible investment to two funds
By David Randall
(Reuters) – BlackRock Inc, the world’s largest asset manager, is adding bitcoin futures as an eligible investment to two funds, a company filing showed.
The company said it could use bitcoin derivatives for its funds BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund Inc.
The funds will invest only in cash-settled bitcoin futures traded on commodity exchanges registered with the Commodity Futures Trading Commission, the company said in a filing to the Securities and Exchange Commission on Wednesday.
A BlackRock representative declined to comment beyond the filings when contacted by Reuters.
Earlier this month, Bitcoin, the world’s most popular cryptocurrency, hit a record high of $40,000, rallying more than 900% from a low in March and having only just breached $20,000 in mid-December.
Bitcoin tumbled 10.6% in midday U.S. trading Thursday.
Other U.S.-based asset managers will likely follow BlackRock’s lead and add exposure to bitcoin in some form to their go-anywhere or macro strategies as the cryptocurrency market becomes more liquid and developed, said Todd Rosenbluth, director of mutual fund research at CFRA.
“It’s easy to see how strong the performance has been of late and look at a historical asset allocation strategy that would have included a slice of crypto and how returns would have been enhanced as a result,” he said. “Large institutional investors are going to be able to tap into the futures market in a way that a retail investor could not do.”
There is currently no U.S.-based exchange-traded fund that owns bitcoin, limiting the ability of most fund managers to own the cryptocurrency in their portfolios.
BlackRock Chief Executive Officer Larry Fink had said at the Council of Foreign Relations in December that bitcoin is seeing giant moves every day and could possibly evolve into a global market. (https://bit.ly/2XXFHrB)
(Reporting by David Randall; Additional reporting by Radhika Anilkumar and Bhargav Acharya in Bengaluru; Editing by Arun Koyyur and Lisa Shumaker)
Bitcoin slumps 10% as pullback from record continues
LONDON (Reuters) – Bitcoin slumped 10% on Thursday to a 10-day low of $31,977 as the world’s most popular cryptocurrency continued to retreat from the $42,000 record high hit on Jan. 8.
The pullback came amid growing concerns that bitcoin is one of a number of financial bubbles threatening the overall stability of global markets.
Fears that U.S. President Joe Biden’s administration could attempt to regulate cryptocurrencies have also weighed, traders said.
(Reporting by Julien Ponthus; editing by Tom Wilson)
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