Dividend payments from UK companies almost doubled in the third quarter of this year, according to the latest data from Link Group.
However despite the focus on more sustainable investment strategies some of these biggest increases have come from the mining and oil sectors. Both sectors saw a slump in demand following the global slowdown from the coronavirus pandemic, but have more recently experienced strong demand with economies around the world starting to open up.
Link says banking dividends also made a big contribution to the overall increase in payments.
Link’s UK Dividend Monitor shows payments were up by 89.2 per cent year-on-year on a headline basis. In total £34.9bn was paid out over this period.
Link Group says this increase was partly driven by large one-off special dividends. But even if these payments are excluded there has still been a 52.6 per cent increase to £27.7bn.
But despite the strong rebound, post-pandemic, only five sectors have paid out more year-to-day that the same period fro 2019. For the full year Link Group expects headline dividends of £93.2bn, an increase of 44.8 per cent year-on-year. Underlying dividends (excluding special one-off payments) are expected to rise by 22.4 per cent to £77.4bn – this is about 25 per cent off the 2019 high water mark.
Link Group says it expects 2022 to bring further growth, which is likely to be underpinned by the banking sector. However it adds that falling commodity prices could mean lower payouts from the mining sector.
Ian Stokes, managing director, corporate markets UK and Europe at Link Group says: “The recovery is certainly uneven and it has caused a growing concentration on extractive industry payouts – not a comfortable long-term position for income investors.
“The good news is that we have consistently seen companies deliver more in dividends than we thought likely at the beginning of the year in the depths of the UK’s longest, strictest lockdown.
“Now almost the whole economy here and in most developed countries is open for business, even if supply chains are in a mess. Moreover, companies were progressively less impacted by each lockdown and many of them took action to bolster their balance sheets during 2020, either with new borrowing, new equity issuance, or cost-cutting. Dividend firepower is now much stronger as a result.
“The boom in special dividends reflects how some companies are making catch-up payments, some are capitalising on very strong demand, and others are seizing the moment to sell assets at a time of high prices and numerous cash-rich potential buyers.
“With banks returning to strength and other sectors continuing to recover we still expect growth in 2022, but dividends will face headwinds rather than enjoy 2021’s strong, but blustery following breeze.”
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