Engineering group Melrose, a long-term favourite in the F&C UK Equity Fund, has become the latest in a series of companies to announce an increased dividend with a payout up 38%.  Others include GlaxSmithKline, Tesco and advertising group WPP all also held within the Fund.  This seems to be a clear theme across the market.  The question we are wrestling with is how this sits with comments from economists and the media of an increased risk of a double-dip recession and the S&P set to fall below 500! Our meetings with companies are not indicating to us that business activity has deteriorated markedly in the last six-months or so.

The results from advertising agency WPP also seem to support this business confidence with increased advertising revenue across their major markets, while in the US airlines added capacity in August for the first time in many months.

Years of experience tell us that finance directors do not like cutting dividends, so why are we seeing such a flow of increases when the economists seem to be preaching doom and gloom?

Furthermore, this is a trend not restricted to the UK, we are also seeing strong increases in Europe and in the US companies are also choosing to return money to shareholders, but via increased share buybacks.

Cairn Energy, another favoured stock in the F&C UK Equity Fund, saw its share price suffer when it announced the discovery of gas from the T8-1 well in Baffin Bay. Investors seem to be speculating that no oil would be found. But Cairn has said they have found “early indications of a hydro-carbon system”. Only time will tell. But let’s not forget that it took 17 wells before Cairn struck meaningful oil in India’s Rajasthan region and there the rest is history.