UK dividends are set for “depressed” growth this year following a “rather bland” 2019 that was only superficially boosted by ‘special’ dividends.
Link Group, which analyses dividend payments, said UK dividends reached record levels last year – albeit mainly powered by specials – but 2020 will be different.
Dividends are important to equity funds that provide an income and last year many will have benefitted from payouts that rose by 10.7% in headline terms to £110.5 billion – more than double the level they reached a decade ago.
However, underlying growth in 2019 paints a different picture. After excluding “exceptionally large” special dividends totalling £12 billion, underlying dividends increased just 2.8% to £98.5 billion – the slowest increase since 2014.
The biggest paying sector was oil, gas and energy – but the sector showed no growth throughout last year and companies used higher oil prices to rebuild dividend cover, according to Link Group.
Mining dividends made the largest contribution to growth, boosted by large special payouts from Rio Tinto and BHP. The mining sector has provided the main engine of UK dividend growth over the last four years, increasing payouts six-fold since the commodity slump of 2015 and 2016.
The banking sector also made a significant contribution to growth last year, with dividends rising by a third to £15.6 billion. This was the first year of payouts that were larger than those made in 2007 when the financial crisis began.
The weakest performing sector of 2019 was telecoms, with total dividends paid falling by over a quarter year-on-year.
Despite a positive year for both sectors, miners and banks are less likely to propel dividends this year, Link Group said, with a stronger pound and the strong possibility of lower special dividends.
Michael Kempe, chief operating officer of Link Market Services, said: “The spice of huge special dividends and the zest of big exchange-rate gains enlivened what was in truth a rather bland year for UK dividends. 2020 is not set for the same superficial excitement.”
He added: “UK dividends face the significant headwinds of a stronger pound and the likely decline of special payouts to more normal levels.”
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