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.