FTSE profit warnings & record dividends

“May you live in interesting times”, often referred to as the Chinese curse, is the purported translation of an ancient Chinese proverb and curse.

Of course no Chinese source has ever been found.

The FTSE 100 index of leading UK company shares has recently been living in interesting times.

Closing at a 7-week high on record earnings yesterday afternoon, the index gained 1.04% on the day and closed at 6,769.91.

Earlier in the week we heard that UK dividend payments had reached a record high of £30.7bn in the first quarter of the year.

Dividends were pushed higher by Vodafone, which declared a special dividend accounting for half the record quarterly dividend, which was up 118.5% year-on-year.

The figures from Capita Asset Services found underlying dividends were only up by 3.3% year-on-year, to £14.3bn, a figure they claimed is ‘disappointing’.

They cut their dividend forecast by £1.7 billion to £99.4 billion for the whole of 2014, which indicates dividend growth of 5.4% for the year.

The research by Capita also highlighted the widening gap between equity dividends and gilt yields, which they say increases the attractiveness for investors.

With UK dividends at a record level and the index at a 7-week high, with the equity and gilt gap widening, is this an attractive index for investors?

More research published this week found that profit warnings issued by UK companies have reached their highest level since 2011 in the first quarter.

EY pointed to 74 profit warnings issued by UK companies in the first quarter, including 14 from FTSE 100 companies.

This exceeds the number of profit warnings issued during the global financial crisis.

Around one-fifth of companies say that pricing pressure is driving the warning. This figure usually stands at just 6%.

According to EY, a strengthening pound, weakening emerging markets and pricing pressures have placed considerable strain on firms’ profits.

It is rarely wise to make a bet on a particular investment market, particularly if you are taking a short-term view.

Intelligent investors continue to diversify, holding multiple asset classes within their portfolios and avoiding significant asset or sector bets.

There are undoubtedly opportunities for long-term investors from the FTSE 100, as well as risks to future profits.

Finding the right asset allocation strategy in order to meet the level of risk you need, want (your attitude to risk) and are able to take (your capacity for risk) is key.

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