UK dividend payouts to increase in 2015, boosted by surging dollar

Companies in the UK are set to pay out more on dividends this year, according to Capita’s January dividend monitor, with Big Oil remaining a sector where the dividend is sacrosanct.

Firms will boost their regular dividends by 5.7% to reach £83.6bn and may even top 7%, were it not for Vodafone, which is now much smaller.

Supermarkets groups will continue to struggle, but the oil majors will not cut their pay-outs, the report declared.

Roughly 40% of UK dividends are paid in dollars, so the surging greenback will account for as much as half the growth in payments to shareholders.

The underlying rate of growth in companies’ payments in 2014 was only 1.4% when excluding payments such as Vodafone’s massive £15.9bn payout in the first quarter of 2014.

Pay-outs from mid-cap companies rose much faster, however, climbing by 8%.

Justin Cooper, chief executive of shareholder solutions at Capita, said, “the year ahead should provide more reason for optimism among income investors”.

Following the report, Nicla Di Palma, analyst at Brewin Dolphin said she did not believe dividends were safe at any of the UK supermarkets.

At Tesco, she believes Tesco chief executive Dave Lewis might leave the interim dividend unchanged from 2014: "this is a nominal amount and we do not believe investors will see significant growth in their Tesco dividend for a few years".

At Sainsbury, Di Palma expect a cut in dividend of about 20% this year and 10% next year, with Morrison she is confident a new CEO to cut the dividend to invest in the customer offer but "the uncertainty is by how much".

Oil analyst colleague Iain Armstrong added: “We do not believe that the Royal Dutch Shell or BP will reduce their dividends in US dollars. Therefore, UK shareholders can expect a significant increase in sterling terms based on the current exchange rate."

"We agree with management at both companies who believe that the dividend is sacrosanct. Therefore, they will if necessary cut capex deeper, increase debt or accelerate their asset disposal programmes rather than overreact to what they consider to be an unsustainably low oil price."