UK dividends fell by 25 per cent in the first quarter this year, as the boom in one-off special payments seen in 2021 began to tail off.
Headline dividends, which include underlying dividends and special one-off payments, fell to £14.2bn, according to Link Group’s latest dividend monitor.
However, the figure for 2021 saw an above-average number of special dividends as companies returned extra funds for shareholders that had been saved during the first year of the pandemic.
Overall dividends fell, but underlying payments increased
Source: Link Group
After taking into account one-off payments and the departure from the UK of mining giant BHP, underlying dividends rose 12 per cent to £13.3bn in the first quarter this year.
BHP was removed from the FTSE earlier this year after it simplified its dual-listed structure and moved its main stock listing to Sydney.
According to Link Group, all sectors increased underlying payouts in the first quarter, with the biggest contribution coming from the oil sector, which saw a 29 per cent rise in dividends.
Oil prices have soared this year after capital spending cuts meant supplies could not keep up with soaring demand after the pandemic.
The war in Ukraine has added further uncertainty over supply, due to concerns Russian oil exports could be embargoed.
The research showed that mid-cap dividends rose higher than those of the top 100 companies.
Mid-cap dividends compared with FTSE 100 dividends
Source: Link Group
“[Mid-cap dividends] had fallen much further during the pandemic so have more room for recovery,” the report said, though they still remain a sixth below their pre-pandemic Q1 total.
Link expects dividends in 2022 to hit £92.2bn, a 0.8 per cent fall year-on-year, reflecting the lower one-off payments and BHP’s migration from London.
However, underlying payments are expected to rise 15.2 per cent to £85.8bn after adjusting to the BHP departure.
Ian Stokes, managing director, corporate markets, UK and Europe at Link Group said the year started as strongly as expected.
“The war in Ukraine is partly responsible as it has pushed oil and metals prices ever higher, driving strong profits in related sectors," he said.
“There are risks to our forecast view of where dividends are heading, related to the constraint on consumer demand caused by energy price hikes here and around the world, and related to cost pressures that will weigh on margins for a number of sectors.
"Mid-cap companies are more likely to show any strain than the top 100.”