Speculation over the EU referendum continued to absorb the limelight during May, and investors and companies became increasingly nervous about the potential impact of a Brexit. The FTSE 100 Index fell by 0.2%, while the FTSE Small Cap Index climbed by 0.2%; meanwhile, the FTSE 250 Index posted a monthly gain of 2.3%. The relatively strong performance of the mid-cap index was fuelled by corporate newsflow, including a takeover approach for investment company Alliance Trust and robust first-quarter revenues for security firm G4S . The best-performing FTSE UK industry sectors over the year to date were industrial metals & mining, mining, and industrial transportation. At the other end of the spectrum, banks, automobiles & parts, real estate investment & services, and life insurance were the worst-performing sectors since the beginning of 2016.
The yield on the FTSE 100 Index rose during May from 3.97% to 4.01% , while the FTSE All Share Index’s yield climbed by 0.02 percentage points to end the month at 3.75% and the yield on the FTSE Small Cap Index edged slightly higher during May, rising from 2.94% to 2.96% . However, the FTSE 250 Index’s yield eased from 2.71% at the end of April to 2.67% . In comparison, the yield on the benchmark ten-year UK government bond fell sharply during May from 1.73% to 1.56% .
During May, housebuilder Taylor Wimpey announced an increase to its ordinary dividend payout and a special dividend worth £300 million. Meanwhile, alongside news of disappointing full-year earnings, high-street retailer M&S announced restructuring plans that are likely to hit short-term profits. The company also revealed a 3.9% increase in its final dividend and a special dividend worth £75 million, or 4.6 pence per share.
Global dividends rose by 2.2% during the first quarter of 2016 compared with the previous quarter, according to Henderson Global Investors’ Global Dividend Index , and special dividends doubled year on year. Although exchange rate movements had only a minimal impact in most areas of the world, sterling’s decline against the US dollar had a material effect on UK dividend growth, and UK dividends fell by 5% during the first quarter. Looking ahead, UK dividends are predicted to undergo a “challenging” period, undermined by swingeing dividend cuts from leading companies in the banking and mining sectors, including Barclays, Standard Chartered, BHP Billiton and Anglo American.