UK dividends jumped 51 per cent in the three months to June this year, as businesses began to reinstate payments to shareholders.
Dividends jumped to £25.7bn on a headline basis quarter-on-quarter, or to £24.3bn excluding special dividends, according to Link Group’s UK dividend monitor.
The group said nine-tenths of the rise was down to firms restarting dividends that were paused during the pandemic, as well as catch-up “one-offs”, and timing changes, alongside regular annual increases for firms that have done well during the pandemic.
The second quarter is in contrast to Q2 last year, when three quarters of firms cancelled or cut their dividends.
Link’s dividend monitor in October 2020 showed UK dividends were down by 49 per cent in the quarter as firms tightened their belts due to the pandemic.
Ian Stokes, managing director of corporate markets UK and Europe at Link, said dividend patterns would be very “noisy” as the country moves through the recovery phase.
“This will make for choppy waters in the months ahead, but it does not mean we are pessimistic. Far from it,” he said.
“As normal life returns to Britain’s streets, so it is returning to business too. All the indicators of economic growth look very encouraging, and companies have come out of the crisis in most cases with their balance sheets looking strong.
"Resurgent profits and healthy bank balances mean more dividends for shareholders. These wider trends also help explain why the regulator has lifted the embargo on dividends from capital-rich banks."
But he added: “Before the pandemic, dividends reached £100.3bn, even before one-off special payouts were added, so the recovery has a way to run.”
The research showed the three biggest dividend-paying sectors were mining, banking and oil, the first two of which contributed two-thirds of the increase.
However the oil sector, which accounted for almost £1 in every £5 distributed by UK companies, saw payouts decline year-on-year due to the reduction in dividends happening slightly later in 2020. Link expects mining firms to settle at around £1 in £10 of UK dividends in future.
The group does expect banking dividends to rebound, now that regulatory limits have been scrapped, but not to their pre-pandemic levels immediately.
That view is supported by the investment director at Global Asset Management, who said last month that financial services firms will buck the dividend trend.
Adrian Gosden explained the actual hit of the pandemic was much less traumatic on the financial services industry than expected, and the regulator was now allowing the firms to distribute the provisions via dividends.
“That will be the biggest one into the pockets of investors.”
Indeed, banks contributed to £3.4bn of dividends in Q2, with HSBC being the biggest contributor.
The bounce-back was fastest for mid-caps, as they suffered the greatest decline in 2020.
But Link warned the “upside tailwind” would get less favourable from here, as year-on-year comparisons will become more challenging due to the “progressive slowdown” in dividends last year.