UK dividend payout climbs to £13bn

UK dividends have had a strong start to 2022, with the adjusted underlying total hitting £13.3bn, according to new data. Photo: Getty

UK dividends have had a strong start to 2022, with the adjusted underlying total reaching £13.3bn, according to the Link Group dividend monitor.

UK dividends totaled £14.2bn in the first quarter, down 24.9% on a global basis due to one-off factors, but after taking lower one-off special dividends and the departure of miner BHP from the London Stock Exchange (LSEG.L) into account, the adjusted underlying total jumped 12.2% to £13.3 billion.

All sectors increased underlying payouts in the first quarter, but oil companies led the growth, with dividends up 29%. Oil dividends were drastically reduced during the pandemic when crude prices crashed. With oil majors seeing a significant increase in cash flow, there is now plenty of room for growth, the Dividend Monitor found.

UK dividends.  Chart: Link Group

UK dividends. Chart: Link Group

“The war in Ukraine is partly to blame as it has pushed oil and metals prices ever higher, generating strong profits in the related sector,” said Ian Stokes, managing director of UK corporate markets and in Europe.

“The oil sector is back – both in the black and in the headlines – even though its distributions are set to double to rebound to pre-pandemic highs. In times of inflation, investors have often turned to commodities like these as a hedge against rising prices elsewhere in the economy”,

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Mining dividends are expected to rise again, with “very large” payments in 2022 driven by soaring commodity prices and bank payments continuing their post-COVID recovery at a slightly faster pace than expected, according to Link Group.

“The mining sector cannot sustain its breakneck pace of dividend increases or the size of its special dividends indefinitely, but the boom continues for now,” Stokes said.

The pharmaceutical and biotechnology company AstraZeneca (AZN.L) saw its first increase in nearly a decade.

LV (BT-AL) the dividend returned after the company suspended payments for the past two years due to uncertainties caused by the coronavirus pandemic.

The real estate sector has also seen a post-COVID rebound and retailers have also started to make a comeback with large special dividends from fashion retailer Next (NXT.L) and variety store B&M European Value (BME.L).

Royal Mail (RMG.L) paid a special dividend, reflecting its strong business activity during the pandemic, boosted by an increase in online shopping.

Mid-cap dividends grew faster than the top 100, up 30.5% on an underlying basis. They had fallen a lot more during the pandemic and therefore have more room for recovery, according to Link Group. However, they remained a sixth below their pre-pandemic total for the first quarter.

Link Group forecast aggregate dividends to reach £92.2bn this year, £4.5bn more than expected.

This was down 0.8% year-on-year, reflecting the drop in one-off promotions and BHP’s exit from the UK stock market. Underlying payments of £85.8bn will be 15.2% higher than in 2021, after adjusting for BHP’s departure, Link Group said.

Top 100 vs. Mid 250. Chart: Link Group

Underlying dividends for the top 100 and middle 250 companies. Chart: Link Group

Link Group expects mid-cap companies to be hit harder by the constraints on consumer demand caused by the rising cost of living and squeeze on margins. Larger companies should be “relatively isolated or even benefit from it”, found the Dividend Monitor.

“Our forward view of the direction of dividends carries risks, related to the constraint on consumer demand caused by increases in energy prices here and around the world, and related to cost pressures that will weigh on the margins of a number of cap companies are more likely to show tension than the top 100,” Stokes said.

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