The UK market continues to offer some of the best equity yields available, with the FTSE 100 forecast to yield 4 per cent in 2017. However, it is also highly concentrated, meaning that a few expensive companies - some of which have seen income flattered by weak sterling - account for a large part of the total dividend haul.
The Capita UK Dividend Monitor reports that although UK dividends in the first quarter (Q1) of 2017 totalled £15.4bn, 9.5 per cent higher than those paid out in Q1 2016, one company alone - BHP Billiton (BLT) - was responsible for 3.5 per cent of the headline growth rate. Meanwhile, just four sectors are forecast to contribute 67 per cent of FTSE 100 dividends in 2017, with oils, banks and insurance contributing 46 per cent of this, according to broker AJ Bell.
And since the UK's vote to leave the European Union last year, the weak pound has been artificially flattering UK dividends. Although in Q1 2017 headline dividends were 9.5 per cent higher than in the same period last year and underlying dividends excluding special dividends were 16.2 per cent higher, when the impact of weak sterling is stripped out underlying dividends actually fell. The top 100 companies' payout over the first quarter was 16.8 per cent greater than what they paid during that period in 2016, but 90 per cent of that increase was due to exchange rates. If the pound strengthens that would bring an end to the "sugar rush of currency gains".