UK dividends had a very good second quarter, according to the latest UK Dividend Monitor from Link Group.
The top line increased to £37bn, a 38.6 per cent increase from the previous year. One major factor, although not the only one, was significant one-time special payments. The overall picture was also favourable. Underlying dividends, which do not include these erratic specials, increased by 27 per cent to £32bn as a result of the weak pound.
This was the second-highest quarterly total on record, both in terms of headline and underlying data, falling just short of the all-time record set in Q2 2019.
Nearly a quarter of the headline total came from mining dividends, which saw a headline annual growth rate of 37 per cent. However, after accounting for the lift from the depreciating pound, this came in a little behind Link Group’s estimates. Most certainly, mining dividends have reached their pinnacle.
The Bank of England’s restrictions on payouts have been lifted, which is the fundamental reason for the banking dividends’ two-thirds surge. For the first time since 2019, Link Group anticipates that banks will rise to the third-largest dividend-paying industry this year.
Oil companies are increasing their dividends quickly, though less quickly than an increase in oil prices would allow them to do so since share buybacks give businesses another way to distribute excess cash to shareholders. Although they increased by 41 per cent in the second quarter, they are still only at 50 per cent of their Q2 2019 peak.
Thanks to strong profit growth and the boost provided by dividends restarting after the pandemic, housebuilders, industrial goods, media, travel, and general financials all had a very excellent second quarter.
Two-fifths of the dividends paid in the second quarter were in US dollars, increasing their worth in sterling by £1.4bn due to the exchange rate. The weaker pound is expected to raise the amount by £3.5bn to £4.5bn for the entire year.
Thanks to the good performance in the second quarter, as well as the accelerated boost offered by the pound’s steep decline and greater one-off specials, Link Group has revised its UK plc dividend prediction for the entire year. The chance that mining dividends have peaked, however, is reflected in the slightly lower core growth estimates.
In 2022, Link Group anticipates that headline payouts would increase by 2.4 per cent to £96.3bn, while underlying payouts—which do not include special dividends—will increase by 12.5 per cent to £86.8bn.
Link Group managing director corporate markets UK and Europe Ian Stokes says: “Mining payouts are closely linked to the cyclical fluctuations in mining profits, and tend to rise and fall much more over that cycle than dividends from other industries. Concerns over global growth have pushed commodity prices sharply lower in recent weeks, though they remain high in historic terms.
“The sector has confounded expectations more than once before, bending their stated dividend policies at important moments. But if mining dividends have indeed now peaked, they will act as a brake on UK dividend growth in the next twelve months having provided the main engine over the last 24.
“The weakness of the pound is also proving a key swing factor this year. If it maintains its current level for the rest of the year, sterling is set to have its worst ever year against the dollar. The translated value of dollar dividends is therefore getting a very big boost.
“As we move into 2023, headwinds will strengthen. The easy post-pandemic catch-up effects are soon to wash entirely out of the figures, and an economic recession will crimp the ability and willingness of many companies to grow dividends.”
