FTSE 250 dividends rise 20% in first quarter

Underlying dividends paid out by FTSE 250 companies - generally seen as a proxy for UK industry - rose one-fifth in the first quarter of this year, while FTSE 100 companies turned in a broadly flat performance.

Capita Asset Services, which compiled the data, said the increase showed mid-caps had benefited more from the expansion of the UK economy. It also suggests they have not had to face some of the headwinds that have hit the largest listed multinationals, including low growth in several overseas markets.

The result is the most striking instance of FTSE 250 companies outperforming the index of larger companies in seven years of data analysed by Capita and is a turnround from two years ago.

In the three months at the start of 2013, underlying dividends from the FTSE 100 were broadly flat, but income payments to investors from FTSE 250 groups fell by one quarter compared with the previous year.

Since that low point, FTSE 250 companies have put in a better performance than the FTSE 100 group in six of the seven subsequent quarters.

In the first three months of this year, FTSE 250 companies accounted for £0.98bn of ordinary dividends, from a total of £14.49bn. In the same period last year, they accounted for just £0.81bn out of £14.53bn.

Dividend growth has been gaining momentum, rising from 15.5 per cent in the third quarter of 2014 to 18.6 per cent in the following period.

At its half-year results, the storage space company Big Yellow Group said it was raising its interim dividend by 30 per cent. In March, the housing group Bellway said that it was raising its full-year dividend by 50 per cent.

Justin Cooper, a senior executive at Capita Asset Services, said: "Mid-caps seem to have had a far greater exposure to the revitalised UK economy, and have felt the full benefit of rising investment and the rejuvenated UK consumer. This has boosted their earnings, allowing for increasing returns for shareholders. They've also avoided the impact of the subdued growth in the global economy that has acted as a drag on multinational large-caps."

This quarter's underlying dividend outperformance by the FTSE 250 looks like the peak. Capita does not expect the pace of increase to continue.

"While prospects look strong for domestically sensitive sectors in the FTSE 250, such as housebuilders and general retailers, the current rate of growth is not sustainable in the long term," Mr Cooper said.

"We expect dividend growth in the FTSE 250 to moderate as 2015 progresses, not least because a stronger end to 2014 will provide a more challenging point of comparison for payouts in the second half of 2015."

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