Falling pound gives dividends a £4.3 billion boost

Whilst the falling pound has been bad for our holiday wallets, it is expected to provide a significant boost to our dividend payouts.

According to the latest Dividend Monitor report from Capita Asset Services, the devaluation of the pound is set to increase UK dividends by a huge £4.3 billion this year.

The UK stock market is very international in nature, and two-fifths of the dividends paid by UK companies are denominated in either dollars or euros. When these dividends are converted back to sterling, the weaker exchange rate means the income receives an extra boost in sterling terms.

Capita expects exchange rate gains of just over £2.8bn in the second half of this year, adding to the £1.4bn already made in the first half of the year, when the pound had already lost ground on EU referendum worries.

This is a turnaround in fortune for UK dividends. Earlier in the year, concerns had been expressed that some of the UK’s largest companies may not be able to continue to grow their dividends, or indeed may need to cut them, with the likes of Glencore and Tesco having already taken such action. Some cuts may still occur, but will be offset, by and large, by the weaker currency.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views of the author and any people interviewed are their own and do not constitute financial advice.