UK dividends showed strong performance in 2021, rising by 46.1% to £94.1 billion on a headline basis, according to the latest Dividend Monitor from Link Group.
One-off special dividends boosted the headline total by a record £16.9 billion, three times more than their normal level. Underlying payouts which exclude specials rose more modestly, up 21.9% to £77.2 billon in 2021, close to 2015 levels.
Across 2021, the second and third quarters saw the strongest rebound which Link Group attributed to challenge conditions.
In Q4, underlying growth slowed to 13.5%, but a large special dividend from DMGT took the headline total to £14.1 billion, 26.1% higher year-on-year.
Last year also saw a greater dependence on mining companies, whose booming profits led to payouts that were three times larger than the long-term average.
This accounted for almost a quarter of the UK total last year. The second most significant driver of growth was the restoration of banking distributions.
Many sectors were able to refuel their payouts more quickly in January 2021 when the pandemic was in a peak, said Link Group.
The industrials sector stood out with 59.8% growth, though its payouts remained below pre-Covid-19 level. The airlines, leisure and travel sectors were greatly impacted by the pandemic and cut distributions by four fifths for the second year running, while oil dividends were lower because reductions in 2020 took place later in the year.
Telecoms was also a main causality, after the cancellation of BT’s distributions.
Meanwhile, typically defensive sectors such as food, basic consumer goods and pharmacy held payouts flat. Mid-caps benefited from cancelled dividends being restored and the “cyclical upswing to which they tend to be more sensitive”, noted the report.
By the end of the year, underlying dividends from the top 100 companies had returned to 2016 levels, but despite their big rebound, mid-cap dividends ended the year no higher than mid-2014 (and at the same level as 2007 and 2008).
In the year ahead, Link Group said it expects underlying growth of 5%, while special dividends are likely to be much lower, meaning headline dividends will fall 7.0% to £87.5 billion.
Over the next 12 months, the group expects UK equities to yield 3.5%. Ian Stokes, managing director of corporate markets UK and Europe, said: “The recovery in UK dividends is not complete, but the easiest part of the catch up is now behind us. 2022 faces a number of headwinds in the form of omicron disruption, inflation, and tax hikes and that adds uncertainty to our forecast.
“As the pandemic continues, it would be easy to take a knife to our expectations for dividends for the coming year. We are, however, cautiously optimistic that most sectors can deliver growth.”
Stokes added that banks and oil companies will be the main engines of progress in 2022, while mining companies will neither sustain the 2021 pace, nor repeat special dividends of this size.
“The proposed imminent departure of BHP from London will help restore some balance to the UK index. The dominance of big mining groups has overshadowed the income generating capacity of the broader market and left UK payouts too heavily dependent on a single, highly cyclical sector,” said Stokes.
© 2022 funds europe
