Capita bumps up forecast for 2016 dividends, mid-caps to take Brexit hit

Despite that, the business process outsourcing company revised its headline dividend forecast for 2016 higher by 3.8% to £82.5bn, as a result of the 'windfall' from special dividends.

UK dividend payouts rose by a record £28.8bn in the second quarter (Q2), marking a 7.6% rise in comparison to a year ago.

That increase surpassed the previous record established in the first quarter of 2014, when Vodafone distributed a record payment in the wake of the sale of its stake in Verizon Wireless.

However, the main reason for the jump in payouts was a flurry of special dividend payments - from a wide range of sectors - which more than quadrupled to £3.5bn.

InterContinental Hotels led the way, paying out £1.0bn, followed by GlaxoSmithKline with another £970m.

A total of 22 companies paid special dividends in the second quarter, the biggest number on record, although by value it was the third biggest total ever.

Underlying dividends, on the other hand, decreased by 2.7% year-on-year to £25.2bn, despite a £960m gain in the value of dividends declared in US dollars and euros as the pound weakened ahead of the referendum vote.

Very low levels of dividend cover

Dividends had held up much better than company profits over the last couple of years, Capita said, but that meant that dividend cover had fallen to very low levels.

"Inevitably, dividend growth is difficult to sustain in those circumstances, and this explains why the underlying picture is weak," it said.

The financial sector was the largest payer in Q2, despite a cancellation from StanChart and a cut at Barclays. Life insurers and Lloyds were particularly strong.

HSBC remained in the top spot in Q2, making up 10% of the total, while Lloyds Bank nudged into the top 5 for the first time since 2008.

The top 5 dividend payers - HSBC, Barclays, Lloyds, BP and Royal Dutch Shell - made up 38% of the Q2 payouts, their biggest share since 2011.

Dividends from mid-caps fell 5.5% to £3.6bn, albeit mainly reflecting changes to the index constituents.

"It’s clear that mid-cap company dividends have continued to outpace their larger counterparts. For now at least," Capita said.

Indeed, Capita forecast future dividends would take a hit from Brexit.

Offsettinig that to an extent, Capita forecast that UK equities would yield 3.7% over the next twelve months, outpacing the 1.4% offered by cash savings accounts or the 3.4% on offer from UK property yields net of costs.

Furthermore, Capita pointed out, for UK taxpayers the first £5,000 of dividend income was tax-free.