Weak pound provides £6bn to UK firm dividends

Traders in UK corporations can anticipate 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 corporations that earn a big share of their revenue overseas, in addition to sterling-based traders whose portfolios have worldwide publicity.

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

However the pound’s decline will ship a file increase to dividend revenue for British traders, growing the sterling worth of payouts from London-listed corporations by nearly 6 per cent this yr, in keeping with a widely-followed trade report by fund administration group Hyperlink.

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

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

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

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

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

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

Column chart of Exchange rate effect on payounts in sterling terms showing Record exchange rate boost to UK dividends

Dividend payouts — a vital supply of revenue for a lot of retirees, pensions and charities — are one other space the place a weaker pound might 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 fee uplift totalled £1.9bn within the third quarter, in keeping with Hyperlink, which forecast a bigger increase within the ultimate 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 influence for 2022 roughly as huge as in the course of the international monetary disaster,” Stokes stated.

Hyperlink upgraded its forecast for whole dividend payouts from corporations listed on the primary market of the London Inventory Alternate, 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 fuel corporations.

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

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