Sterling's weakness helps shareholders earn 'supercharged' dividends, Capita Asset Services says

The decline in the value of the sterling has added "rocket fuel" to investor returns. This has helped the owners of London-listed shares to earn "supercharged" dividends in the third quarter of 2016, according to Capita Asset Services, UK's leading provider of business process management and integrated professional support service solutions.

The Capita UK Dividend Monitor said that many companies especially in the mining and retail industry had reduced their dividend payouts by billions in 2016. However, despite this, the decline in the value of the sterling post the UK's vote to leave the EU, had made these dividends more valuable, it explained.

In terms of actual numbers, the UK firm said that without foreign exchange effects, dividends for the third quarter fell 0.1%. However, amid the sterling weakness shareholders' returns have increased by 1.6% or £2.5bn ($3.04bn) to £24.9bn.

"The devaluation of the pound comes with a silver lining...In the short term, the pound's fall is supercharging UK dividends, adding rocket fuel to returns," Justin Cooper, chief executive of the shareholder solutions arm of Capita Asset Services said.

The firm's research further said that the decline in the UK's currency would boost dividends by £5.6bn this year. It expects shareholders to earn a total of £84.7bn in 2016, a 6.6% increase from 2015.

The reason why actual dividend payouts has increased despite the fall in the sterling is because about 40% of the UK-listed firms, such as Royal Dutch Shell and Unilever reward their shareholders in dollars or euros. Hence, this is being translated at much more favourable foreign exchange rates.

That said, not all investors were optimistic that the weaker pound will be good for shareholders in the long-term. Some opined that this could negatively affect importers and the UK consumer spending, which in turn could reduce corporate earnings and investor returns.

Matthew Beesley, head of global equities at Henderson Global Investors was cited by the Financial Times as explaining, "Dividends are optically higher and the FTSE 100 has hit record highs, but the reality is that the fall in the pound could be a negative for earnings in the long term.

"There will be a battle over who bears the brunt of the extra costs from higher input prices. In the end, it will probably be shared by the supplier, retailer and the consumer, which is not good for earnings or high street sales."