Weak pound provides £6bn to UK firm dividends

Buyers in UK firms can count on to obtain a further £5.7bn of dividends this yr due to the pound’s slide in opposition to the US greenback.

The additional money underlines how a weaker UK foreign money advantages many British firms that earn a big share of their earnings overseas, in addition to sterling-based traders whose portfolios have worldwide publicity.

The pound hit a report low in opposition to the greenback final month following the UK authorities’s ill-fated plans for intensive and unfunded tax cuts. Even after recovering, it’s nonetheless down 15 per cent this yr.

However the pound’s decline will ship a report increase to dividend earnings for British traders, rising the sterling worth of payouts from London-listed firms by virtually 6 per cent this yr, in keeping with a widely-followed business report by fund administration group Hyperlink.

“The distinctive weak spot of the pound [has] enormously flattered the figures,” mentioned Ian Stokes, managing director at Hyperlink Group. “Because the greenback has soared in worth, the translated worth of greenback dividends has obtained a lift.”

Round two-fifths of UK-listed companies declare their dividends in {dollars} or euros. These earnings streams at the moment are price rather more than they have been final yr, as the worth of sterling has slipped to multi-decade lows.

The autumn in sterling over the long run stems partly from the greenback’s ascent. The buck has been propelled larger by the Federal Reserve’s aggressive tightening of financial coverage this yr. Increased rates of interest usually attract overseas capital as traders search out extra enticing returns.

The greenback has additionally been supported in latest months by its conventional standing as a haven asset throughout instances of financial and market stress.

However a weak pound additionally displays traders’ worries in regards to the future trajectory of the UK economic system.

Nonetheless, a weaker foreign money does provide some silver linings for British traders. Sterling-based traders who personal abroad property, resembling US shares, have seen their portfolio maintain up higher throughout this yr’s market sell-offs as the worth of overseas property will increase in pound phrases.

Dividend payouts — an important supply of earnings for a lot of retirees, pensions and charities — are one other space the place a weaker pound could be useful to shareholders.

Firms like Shell and HSBC, which generate substantial abroad revenues, denominate their payouts to shareholders in {dollars}. However for traders who choose to take cost in sterling, the trade price uplift totalled £1.9bn within the third quarter, in keeping with Hyperlink, which forecast a bigger increase within the closing three months of the yr.

“On present traits, the increase within the fourth quarter is prone to be even bigger and can convey an exchange-rate impression for 2022 roughly as massive as through the world monetary disaster,” Stokes mentioned.

Hyperlink upgraded its forecast for whole dividend payouts from firms listed on the primary market of the London Inventory Change, excluding funding trusts, to £97.5bn, a rise of 5.5 per cent from final yr, supported by foreign money results and better funds from banks in addition to oil and gasoline firms.

However UK payouts stay decrease than pre-Covid ranges, as many companies took the chance through the pandemic to reset the amount of money they return to shareholders.