It seems more likely the euro crisis will now be successfully resolved, meaning the UK’s status as a safe haven is less crucial. This, combined with a poorer-than-expected performance on the deficit, has caused an increase in bond yields above 2 per cent.
There is a wall of money set to come out of bonds at some point, and it is likely to find a home in the equity markets. Yields on shares still far exceed bonds.
2012 was marked by a large number of big one-off factors for dividends. At a headline level, it will make dividend growth hard to achieve in 2013, while a slowdown in the pace of underlying growth seems to be underway as well.
UK firms paid out a record £80.4bn in dividends in 2012, 16.2 per cent, or £11.2bn more than 2011, itself already a record in cash terms. The 2012 total is an all-time record after adjusting for inflation too, finally exceeding the 2008 high in real terms, demonstrating that UK plc is finally paying out more to its investors than before the financial crisis and subsequent recession.
In tune with the trend for the whole year, this was also a record for the fourth quarter, which delivered £14.1bn, fractionally ahead in cash terms, of the fourth quarter of 2008, although in real terms it was still some way behind.
The fourth quarter is usually the smallest quarter of the year for dividend payments, and 2012 was no exception, accounting for roughly a sixth of the total distributed during the year. It was the eighth consecutive quarter of growth.
However, it was flattered by the early payment of HSBC’s third interim dividend, worth £1.2bn gross. This would usually hit shareholders’ accounts sometime in the first quarter, but this year the company chose to pay it early. There will be no HSBC dividends payable between January and March 2013.
The effect is to overstate the strength of the fourth quarter, though payouts still grew. Special dividends were the single largest feature of 2012, and considerably distorted the overall picture.
They totalled £6.8bn in 2012, more than the combined total of 2008, 2009, 2010 and 2011, and 154 per cent higher than the total in 2011, which was already an exceptional year.
This means they accounted for more than one third of the total growth in dividends in the year. They made up a twelfth of total distributions. Most of the special dividends (87 per cent) were paid out in the first half of the year and in the fourth quarter they totalled a much smaller £464m, an increase of 57 per cent on the same period in 2011.
The big special dividend payers in 2012 were Vodafone’s much trumpeted £2.2bn payout from its interest in Verizon Wireless in the US, and Cairn Energy’s similarly sized capital return. In the fourth quarter, the largest contributor was Intercontinental Hotels, which announced a $1bn capital return to shareholders, half through a special dividend (£323m), and half through a share buyback, funded by proceeds from the sale of the New York Barclay hotel and other disposals.
Unlike 2011, there were almost no special dividends from stocks outside the FTSE 100 during 2012, just £47m, compared with £382m in the previous year. One or two companies have become such habitual special dividend payers that it is hard to consider them truly exceptional payments. Antofagasta and Hargreaves Lansdown stand out.
The perennial payers most likely wish to show consistent progress in their regular dividends, returning extra profits with a ‘special’ label attached.
In most cases, the names do not recur every year, but, there will always be a certain level of special payments, as companies return capital that might be considered exceptional; disposals or restructuring are the most common sources of such payments. ‘True’ dividends might be better thought of as resulting from the regular operations of a company.
The ex-special growth in UK dividends in 2012 was 10.6 per cent – a total of £73.6bn this year compared with £66.5bn in 2011. The second half growth rate was weaker than the first half, at 9.1 per cent compared with 12.2 per cent. The fourth-quarter growth rate was 8.9 per cent.
However, if we adjust both for special dividends and for the early payment of the HSBC distribution, growth for the full year 2012 was 8.9 per cent, 5.7 per cent for the second half, but for the fourth quarter the total payout was actually down 0.2 per cent, worse than expected.
Justin Cooper is chief executive of Capita Registrars
