LONDON (Reuters) - Sterling's strength against the dollar is set to wipe billions of pounds off of the dividend payouts of UK companies this year, combining with slow underlying growth to crimp equity income being returned to investors.
The strength of the pound, most notably against the dollar, means that 2014 dividends will be 3.5 billion pounds lower than they would have been otherwise, a study by Capita Asset Services showed on Monday.
The report says nine of the top 20 dividend payers prepare their accounts in dollars, with one using euros, meaning that the "the UK income investor is unusually exposed to changes in the currency."
"The strengthening pound is a consequence of Britain's recovery from the most damaging downturn in a century. But it is hitting income investors hard," Justin Cooper, chief executive of Shareholder solutions, part of Capita Asset Services said.
The pound has risen about 13 percent against the dollar since last July, impacting the UK's most internationally exposed names the most.
Oil and mining companies have seen their dividends hit by both the weak performance of their sectors as well as currency effects, and have contributed to the slowdown in underlying growth in dividends as they account for more than a quarter of payments.
Underlying payments rose 3.3 percent year on year in the first quarter, the smallest increase in two years.
While headline figures showed UK dividends had hit a record 30.7 billion pounds, this figure was distorted by one-off payments, with a special dividend from Vodafone L:VOD accounting for more than half the total.
(Reporting by Alistair Smout; Editing by Hugh Lawson)