The General Election commanded plenty of attention during May as investors became increasingly unsettled by uncertainties over the possible outcome of the vote. The FTSE 100 Index reached new highs in May and breached 7,500 points for the first time. Over the month, the FTSE 100 Index climbed by 4.4%, while the FTSE 250 Index rose by 1.8%. The yield on the FTSE 100 Index declined in May from 3.76% to 3.67%, while the FTSE 250 Index’s yield eased from 2.65% to 2.64%. In comparison, the yield on the ten-year gilt fell from 1.17% to 1.13% over the month.
Underlying dividend growth is expected to reach 7.7% during 2017, according to Capita Asset Services’ latest Dividend Monitor, and a weak pound is likely to contribute three-quarters of that growth. In contrast, Capita forecasts headline dividend growth of only 2.8%, citing weaker-than-expected special dividends in the first quarter. Capita calculates that companies in the FTSE 100 Index have benefited “disproportionately” from the pound’s weakness, whereas more than 90% of mid-cap dividends are declared in sterling and are therefore less influenced by currency considerations than their blue-chip counterparts.
Amongst the blue-chip companies, supermarket retailer Sainsbury’s revealed a drop of 8.2% in full-year profits and issued a warning over the effects of slow wage growth and cost increases. The company cut its dividend payout by 15.7% to 10.2 pence per share. Meanwhile, higher oil prices pushed up BP’s first-quarter profits and the company maintained its quarterly dividend at ten cents per share. Within the FTSE 250 Index, telecoms company TalkTalk issued a profit warning for the current financial year and cut (or “reset”) its dividend by over 30%.
Personal goods has been the best-performing FTSE UK industry sector since the start of the year, followed by electronic & electrical equipment, forestry & paper, and household goods. The worst-performing sectors included fixed-line telecommunications, technology hardware & equipment, oil & gas producers, and industrial metals & mining.
After experiencing a surge in demand during March, sales of funds in the UK Equity Income sector slowed down in April, according to the Investment Association (IA). Similarly, having enjoyed substantial inflows in March ahead of the end of the ISA season, the mainstream UK All Companies sector fell back in April. In contrast, investors’ appetite for UK small-cap funds improved during April.