UK companies beating earnings expectations

Higher-yielding stocks continued to underperform in March, in spite of a much improved outlook for dividends. The FTSE 350 Higher Yield index returned less than half of its lower yield counterpart over the month as markets saw another jump up.

The higher yield index rose 3.7%, while the lower yield index rose 8.6%. The overall yield on the FTSE 100 fell from 3.48% to 3.27% as share prices rose.However, with more companies beating earnings expectations, the outlook for dividends continued to improve and indeed data group Markit now predicts a rise in dividends of 18% in 2010. The group based its prediction on the 161 FTSE 350 companies that have already reported earnings of which 47% have beaten forecasts while only 27% have missed. That said, it is some of the big dividend names that have missed – most notably GlaxoSmithKline.

There may be some small distortion in the figures as a number of companies have rushed to pay dividends before the introduction of the 50% tax rate. Others have issued special or quarterly dividends. Even so, there has been plenty of good corporate news for dividend seekers. HSBC issued an upbeat statement on the outlook for L&G’s dividend, for example, saying the insurer is likely to generate a cash surplus of £1bn over the next few years, some of which will find its way into higher payouts for shareholders.

Elsewhere, Kingfisher raised its dividend for the first time in five years as B&Q posted better than expected like-for-like sales. Equally, AG Barr raised its full-year dividend as Irn Bru sales benefited from the wider improvement in the economy whil Kazakhmys reinstated its dividends as the copper price continued to perform well. IMI also raised its dividend on the back of improved sales while Man Group saw funds under management dip 7%, but still maintained its dividend.

Shell was less positive, saying that even though production was likely to increase faster than expected over the next three years, dividends would remain at their current level. It also changed its dividend policy from ‘increasing in line with inflation’ to ‘calculating payments in line with the view of underlying earnings and cash flow’.

The UK Equity Income sector is still trailing over the year to date, with the average fund currently up 5.38% for the year. This compares to a return from the UK All Companies sector of 6.84% although UK Equity Income & Growth is the worst performer, delivering just 4.92%.

Article



Feedbase