Dividends bounced back strongly this year but are set to drop in 2022 as the mining sector feels the pinch of a drop in metal prices, according to AJ Bell.
Total dividend payments for the FTSE 100 this year, excluding special payouts, are expected to reach £81.8bn, a 32 per cent increase on the figure for 2020, when many dividends were scrapped due to the pandemic.
In its latest Dividend Dashboard report, AJ Bell predicts the figure will hit £83.7bn next year, a rise of just 2 per cent, and £84.8bn in 2023.
The mining sector is one of the biggest contributors to dividends in the FTSE 100, but these are set to drop by £2.1bn next year due to a drop in industrial and precious metal prices, particularly iron ore and copper.
Expected FTSE 100 dividend payments
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
Dividends could also be impacted by regulation, including a rise in dividend taxes or a threat by the Pensions Regulator that firms with pension deficits will have their dividend payments challenged. This could lead to firms returning cash to shareholders through share buy-backs, instead of dividends, according to AJ Bell.
Another reason for slow dividend growth could be that dividend cover is growing.
According to Russ Mould, investment director at AJ Bell, firms may also deliberately curb their dividend growth.
“Companies may be choosing to let earnings growth outpace dividend growth so they can reinvest in their businesses, bolster balance sheets and rebuild cover, so that their shareholder distributions are not quite the hostage to fortune that they proved to be in 2020, should another unexpected shock emerge from left field,” he said.
The top paying firms in 2022 are expected to be Rio Tinto, Shell and British American Tobacco, paying £5.8bn, £5.4bn and £5.2bn respectively, according to AJ Bell.
Glencore is expected to grow its dividend by the highest amount next year, increasing its payout by £1.5bn, whereas property development firm Berkeley is expected to be the top dividend cutter, dropping its shareholder payment by £49m.
Highest dividend payers in 2022
| Dividend (£m) | Dividend as per cent of FTSE total | Dividend cover |
Rio Tinto | 5,801 | 6.9% | 1.44x |
Shell | 5,406 | 6.5% | 3.24x |
BAT | 5,241 | 6.3% | 1.49x |
BHP Group | 4,652 | 5.6 % | 1.34x |
HSBC | 4,229 | 5.1% | 1.64x |
Unilever | 3,792 | 4.5% | 1.35x |
Glencore | 3,638 | 4.3% | 1.89x |
AstraZeneca | 3,366 | 4.0% | 1.71x |
BP | 3,357 | 4.0% | 3.09x |
GlaxoSmithKline | 2,754 | 3.3% | 1.73x |
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
However, Mould warned the highest-yielding stocks don’t usually prove to be the best long-term investments.
“Often defending a high yield can be a burden for a firm, as it sucks cash away from vital investment in the underlying business, or can be a sign that the company is in trouble and investors are demanding such a high yield to compensate themselves for the (perceived) risks associated with owning the equity,” he said.
The strongest long-term performance often comes from those firms that have the best long-term dividend growth record, he added, as they provide the “dream” combination of higher dividends and a higher share price – the increased distribution will over time drag the share price higher through sheer force.
“A 1p per share dividend on a 100p share price may not catch the eye, but if that dividend reaches 10p in a decade’s time it almost certainly will.
“The ravages of the pandemic and the recession have taken their toll on the ranks of FTSE 100 firms that can point to a ten-year dividend growth track record.”
sally.hickey@ft.com
