Total dividends in the UK rose by 5.1% during 2018, falling just short of the £100 billion mark, but still breaking the record.
The £99.8 billion of dividend payments were down to a combination of rising profits, better-than-expected ‘special’ dividends and a slump in the pound in the second half of the year, according to Link Asset Services, which publishes the ‘UK Dividend Monitor’.
The figure for underlying dividends – which excludes special dividends – was 8.7% higher than in 2017, at £95.9 billion.
The biggest single contributor to the dividend growth was British American Tobacco. In terms of sector, the mining sector accounted for the majority of the increase, followed by the banking sector thanks to pay-outs from Royal Bank of Scotland and Standard Chartered.
In total, nine out of ten sectors featured in the report raised pay-outs during 2018.
The rise in dividends across the board will be welcome reading for investors who are concerned about potential dividend risk, a factor highlighted by fund manager Robin Geffen last year.
The increase in dividends combined with falling share prices in the fourth quarter produced the highest yield for UK equities since March 2009. A high yield can often be seen as a signal of future volatility on the basis that company earnings evaporate quickly during a downturn.
As Justin Cooper, chief executive of Link Market Services said: “2018 was a terrific year for dividends but a terrible one for share prices. That’s pushed yields to extraordinary heights.”
Link Asset Services anticipates that dividend growth will slow in 2019 to 4.2% but still reach a record figure in excess of £100 billion. It has also forecast that shares will yield a collective 4.8% during the course of 2019 with the top 100 equities yielding 5% while mid-caps will yield 3.3%.
“We still expect 2019 to break new dividend records, but our forecasts are not especially bullish – one or two companies face difficulties and the easy wins from the mining sector are behind us,” said Cooper.
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