How to find dividend growth shares in uncertain markets

Wednesday, Sep 06 2017 by
How to find dividend growth shares in uncertain markets

A good chunk of the dividend payouts from UK-quoted companies were supercharged over the past year. The extra boost came from the exchange rate impact of weaker sterling, which fell sharply against the dollar and the euro after the EU referendum. It meant that overseas corporate earnings that were paid out as dividends in the UK got the benefit of of an exchange rate tailwind.

On average around 40 percent of UK dividends come from from foreign earnings through the year. In the second quarter of 2017, the currency effect contributed £1.2bn to the £33.3bn total payout, according to Capita Asset Services. But these exchange rate gains will disappear during the second half of 2017 - and dividend growth is expected to slow down. So for income investors coming back to the market after the summer, there’s a sharper focus on which companies are well placed to grow their dividends in the coming year.

Digging into the exchange rate boost

Dividend payouts in the second quarter reached an all time record, according to statistics from Capita. That was driven by a combination of strong underlying growth in dividends, some big special payouts (including a notable one from National Grid), and exchange rate gains.

Those currency-related gains come from two main sources, which overlap in some cases. First are those companies that report their dividends in foreign currencies like the dollar. Second are those businesses that have been more profitable because of the sterling value of their international operations or because of their export sales.

But after 15 months of impacting on the quarterly dividend figures, the weakness of sterling against other currencies is not now having the same impact in the dividend growth statistics. Essentially, this short, sweet spell is coming to an end. We’re back to focusing on dividend growth track records and corporate earnings forecasts as a guide to where dividends are likely to grow in the future.

Searching for dividend growth

One of the best performing income strategies tracked by Stockopedia over the past year has been the dividend growth-focused Dividend Achievers screen. With a 21 percent return (excl. dividends) this strategy prioritises financially sound companies with growing earnings and a track record of ratcheting up payouts for at least the past five years.

Very long term dividend growth track records (well beyond just five years) are popular in…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

Do you like this Post?
8 thumbs up
0 thumbs down
Share this post with friends

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter

About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »


Stock Picking Tutorial Centre

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis