UK equities performed relatively strongly during April compared with many other major markets around the world. In general, larger UK companies outperformed their medium-sized and smaller peers, and the FTSE 100 Index hit its highest level since December 2015 during the month. Share prices were boosted by signs of recovery in the mining sector, a rebound in the price of oil, and encouraging trade data from China.
The FTSE 100 Index rose by 1.1% in April, while the FTSE SmallCap Index climbed by 1%. In contrast, the FTSE 250 Index fell by 0.7%. During April, Royal Bank of Scotland (RBS) warned of a “significant risk” that it might not meet the 31 December 2017 deadline to divest its Williams & Glyn business. RBS has to divest Williams & Glyn before it can resume dividend payouts. Elsewhere, engineer Cobham announced its intention to cut debt through a rights issue worth £500 million.
The yield on the FTSE 100 Index continued to decline during April, easing from 4.04% at the end of March to 3.97%. However, the yield on the FTSE 250 Index edged slightly higher from 2.68% at the end of March to 2.71% at the end of April. Meanwhile, the FTSE SmallCap Index’s yield remained virtually unchanged, creeping up by 0.01 percentage points to 2.94%. In comparison, the yield on the benchmark ten-year UK government bond rose during April from 1.54% to 1.73%.
UK dividends rose at an annualised rate of 6.4% during the first quarter of 2016, according to Capita Asset Services, reaching £14.2 billion. However, much of this growth was caused by special dividends and, once these are stripped out of the calculation, annualised growth was only 1.3%. Looking ahead, Capita does not expect even this “modest” underlying growth to be sustainable; 2016 is tipped to be the worst year for dividend growth since 2010, not least because several very large companies announced dividend cuts during the first quarter that will take effect later in the year.
Nevertheless, there are reasons to be cheerful. During the first quarter, 35 industry sectors increased dividend payments, while only four cut them. Capita calculates that this is the best ratio in almost three years, suggesting that most companies are actually paying out more cash to their shareholders, and this trend appears particularly prevalent amongst medium-sized companies