Traders and investors in Britain are optimistic to see larger dividend payouts in the next two years following the fall of sterling leaves companies with overseas profits with a lot more gains to shareholders.
Sterling went down approximately 9 % against the dollar this quarter and with authorities indicating no proclivity to hinder the slide, oil companies, miners and several others saw a window of opportunity to squeeze more pounds out of their regular profits overseas.
Britain’s blue chips were able to come up with approximately 60 % of their proceeds outside Europe and the likelihood of a boost in the exchange rate to dividends positions were very much in favour of attracting investors who are seeking alternative sources of income to substitute the low returns on offer from bonds by the government. The effect however will take a little while longer to be filtered through although markets are presently waiting for higher payouts.
The 2014 dividend future on the FTSE 100, that lest investors to make direct trades in the aggregate level of payouts coming from the index constituents went up 5.1 % in the previous month as compared to a net gain of less than 2 % in the equivalent contract for the euro zone blue chips.
The recent foreign exchange polls by Reuters reveal the sterling to be relatively in buoyant levels as against the euro and the dollar in the coming weeks. Analysts predict to see a much greater risk of weakness in the coming months rather than strength.
The Deutsche Bank predicts a 5 % decrease in the dollar/sterling rate that would lead to a 2.2 % increase in FTSE 2014 and 2015 dividend futures during the effects of the currency alone. With British dividend-focused exchange-traded products of ETPs reportedly saw $80 million of inflows by far this year with an average of 9.43 % increase in net asset value.
Indicators of companies from the UK’s dividend growth has outstripped most of euro zone firms and in the first two months of this year a 58 % of dividend announcements increased against 48 % in Europe. Delighted by the promise of higher future payouts from several companies including heavyweight HSBC were raising a lot of speculations as well.
The last 30 days were full of optimism including that of Reuters Star Mine Smart Estimates of the British dividends for this year and the next will have risen by 0.6 % and 0.5 % correspondingly while those coming from the euro zone will decrease down to 0.2 %-0.4 %.
The exchange rate to augment the dividends is not necessarily the result of an underlying change between companies’ prospects therefore the higher payouts should not automatically be seen as a precursor of much stronger growth earnings.