Sterling’s fall is boosting dividend payments.
On the day of the referendum, a pound would buy you nearly $1.50. It dropped sharply in the wake of the vote and then spent about three months churning between roughly $1.35 and $1.30. October produced another leg down to the $1.22 area as a ‘hard’ Brexit began to seem more likely.
An 18%+ fall in sterling is normally not going to be considered good news, but there is a silver lining for investors – dividends. According to the latest quarterly Dividend Monitor from Capita, one of the UK’s largest share registrars: “Large dollar- and euro-denominated dividends from multinationals like Shell, HSBC and Unilever were translated at a much more favourable rate to sterling” boosting total dividends paid during the July-September quarter to £24.9bn. That sum was over £1bn more than Capita had initially estimated for the quarter.
Capita now forecasts total dividend payments in 2016 will be over 6% higher than in 2015, despite large dividend cuts from the mining sector. With inflation on the increase, but still well below the Bank of England’s 2% target, dividends are thus showing a substantial real terms increase. Capita estimates the yield for UK shares over the next 12 months will be 3.6%. If you are looking for income as savings rates fall further, UK shares are certainly worth considering.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
25th November 2016