Reinvested dividends are crucial to long-term returns, so sterling’s plunge is good news.
Forty percent of payouts by UK-listed firms are in dollars or euros, and they are now worth more in sterling terms.
According to the latest quarterly Dividend Monitor from Capita Asset Services, dividend payouts rose by 1.6% year-on-year to £24.9bn between July and September. A £2.5bn boost from sterling’s slide negated £2.2bn of cuts, mainly from the mining sector. This marks the largest exchange-rate effect in any quarter since the financial crisis.
The total sterling boost this year is likely to reach £5.6bn, propelling overall payouts to a total of £84.5bn this year. And “exchange-rate gains look set to support UK plc dividends well into 2017”. What’s more, if sterling keeps falling, “2016 will exceed even our newly revised forecast”.