Capita Asset Services is predicting a record year for UK dividends in 2014, despite a lacklustre period for dividend returns last year.
In 2013 headline dividends dropped 1% to £79.8bn, according to the latest UK Dividend Monitor, the first decline since 2010.
The report attributes the decline to a sharp drop in special dividends over the year, which fell from £7bn in 2012 to £2.4bn in 2013 as big payments from Cairn Energy and Vodafone were not repeated.
However, the new year will see an ‘unprecedented' £16.6bn dividend from Vodafone, which will be the largest single payment in UK corporate history, Capita said.
It is therefore forecasting dividends to hit £101.1bn this year, which will ‘smash' the previous record set in 2012.
However, it has trimmed its previous forecast for underlying dividend growth by £800m to £82.2bn. That would mean a rise of 6.3%, down from 6.8% for the whole of 2013, but still above the 5.6% achieved in the second half of last year.
Justin Cooper, chief executive of shareholder solutions at Capita Asset Services, said: "UK dividends ended 2013 with a whimper. However, the coming recovery in corporate earnings offers a much brighter outlook and will herald a renewed acceleration in dividend payments.
"We are only penciling in fairly modest growth for the year to come, but 2014 will be buoyed by Vodafone's huge payout. This will make 2014 a record year."
Even stripping out the ‘Vodafone effect', however, Cooper still expects equity yields to remain attractive and provide support for share prices despite the current high valuations.
He also expects to see a busy IPO market, as the supply of new companies increases and investors have the cash from dividend payments to re-invest in takeovers.
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