The stocks paying bumper dividends


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WHETHER you raised your eyebrows at the 15% hike in Shell’s latest dividend pay out to shareholders probably depends on whether you’re one of them, or not. While householders’ ability to pay the cost of eye-wateringly high gas and electricity bills continues to dominate headlines, the fact is the oil and gas industry is sitting on a goldmine right now. And investors are doing pretty nicely out of it too.

Love them or hate them, that’s the very reason why all the big pension funds continue to invest in oil majors Shell (SHEL) and BP (BP.). Action group Just Stop Oil may vehemently protest but the fact is that the industry is on an earnings roll. Shell plans to reward shareholders with the dividend hike after Q3 profits topped $30bn; more than double what it made during the first nine months of 2021. It is now on track to beat the record annual profits of $31bn it made back in 2008.

However, the oil and gas giants are not the only companies that will be in a position to reward investors with bumper dividend pay outs this year. The weak pound has brought in an era of potentially higher dividends for shareholders across UK companies.

Last month, sterling plunged to a record low against the dollar. Since then, the pound has rallied, but the value of the pound is still low in historic terms and down around 15% this year. And there are two very distinct sides of the weak pound story.

On the one hand, a fall in the pound increases the price of goods and services imported into the UK from overseas. When the pound is weak against the dollar or the euro it costs more for companies in the UK to buy food, raw materials and parts from abroad. However, the flipside to this is that a weaker pound is of huge benefit to the many British companies that earn a large share of their income abroad. And for that, look at most of the companies in the FTSE 100 – as they tend to be held by sterling-based investors and yet have international exposure.

According to a report by fund administration group Link1, the recent weakness in the value of the pound will increase the sterling value of dividends paid by London-listed companies by almost 6% this year. That’s because while around two-fifths of UK-listed businesses (like Shell) declare their dividends in dollars or euros, UK investors – who opt to take payment in sterling – will find that overall, the weaker pound gives them a further uplift. Link reckons this exchange rate uplift totalled £1.9bn in the third quarter and it’s forecasting an even larger boost in the final three months of the year.

Link has upgraded its forecast for total dividend pay outs from companies listed on the main market in London, excluding investment trusts. It estimates that they will total £97.5bn this year, an increase of 5.5%. If that turns out to be accurate, 2022 could very well turn out to be an exceptional year for income hunters.

1. Financial Times, 26.10.2022

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