FTSE 250 payouts will drive UK dividends up 10% this year

Old Mutual Asset Managers’ Stephen Message said UK dividends will rise 10% this year, driven by FTSE 250 companies increasing payouts for shareholders.

Message, who heads up the £49m Equity Income fund, said he is deriving 30% of his income from the FTSE 250.

He said M&A activity is starting to come through and share-buybacks are also picking-up as the market shrugs off macro-economic headwinds, after Japan and the Middle East caused a temporary slowdown in the market.   

“Companies in the FTSE 250 who have strong competitive positions in their respective markets, such as Restaurant Group, have significant capacity to grow their dividends,” said Message.

“As such, I believe company profits will continue to grow, especially as they
are growing their capacities and increasing payouts to shareholders.”

Message warned growth will stall if a big section of the market comes under pressure, like financials did last year. 

The manager said he is protecting against this headwind by employing a cyclical bias and shunning defensive names, which are overpriced.

“I think defensive sectors such as tobacco and pharmaceutical companies are trading at relative high levels, given they have subdued income and growth prospects. I am underweight in both areas.”