Investments  

Q3 dividends up 89% but remain below 2019 levels

Q3 dividends up 89% but remain below 2019 levels

UK dividends were up 89 per cent in the third quarter this year, pushing the 2021 forecast to an expected 45 per cent increase year on year. 

Shareholder payments hit £34.9bn between July and September this year, a nearly 90 per cent increase on the same figures last year, according to Link Group’s latest dividend monitor.

Although one-off dividends were partly responsible for the increase, the underlying total (which excludes one-off payments) still rose 53 per cent to £27.7bn.

A larger driver of the boom was an increase in mining dividends. These quadrupled year-on-year to £12.8bn, making the sector’s payouts larger than the next five biggest sectors combined.

Oil and banking dividends also added to the rise in payouts.

Link Group has upgraded its forecast for the full year as a result of the dividend increase, now predicting 2021 will see shareholder payments of £93.2bn, a 45 per cent increase year-on-year. Underlying dividends are expected to rise 22 per cent to £77.4bn, mostly due to the mining boom. 

However, the large rebound in the latest quarter, which is set against a pandemic quarter in which payouts halved, is still not enough to restore dividends to full strength, taking the total only a little higher than the level seen in 2018. Most sectors have paid less year-to-date than they did in 2019, Link said. 

Ian Stokes, managing director, UK and Europe corporate markets at Link Group, said: “Forecasting the rebound for UK payouts has been rather more difficult than working out where the cuts would fall last year.

"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."

He added companies have been progressively less impacted by each lockdown and dividend power is now stronger as a result of the action taken by firms to bolster their balance sheets.

"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.”

David Smith, fund manager at Henderson High Income Trust, added caution was needed for 2022 when dividends are likely to slow.

“Recent falls in the Iron Ore price is likely to lead to lower dividend payments from the mining sector next year, while it is probably still too early to expect material dividends from those businesses most impacted by the pandemic, especially in the hospitality and travel industries.”

He added supply chain disruptions and accelerating cost inflation may put pressure on corporate margins which could temper companies’ ability to grow dividends in the short term.