UKJan 30 2023

UK dividends rose 8% in 2022 boosted by weak pound

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UK dividends rose 8% in 2022 boosted by weak pound
The weak pound boosted UK dividend by £3.8bn in 2022 (Luke MacGregor/Bloomberg)
BySally Hickey

UK dividends rose 8 per cent in 2022, despite an uptick in share buy-backs.

Investor payouts totalled £94.3bn last year with almost every sector growing their dividends, according to Link Group’s latest dividend monitor.

The payouts increase even though there were a record number of share buybacks in 2022, representing 2 per cent of UK market capitalisation. 

The weakness of the pound, which fell to a low not seen in years after the “mini” Budget last autumn, provided an extra £3.8bn boost to payments declared in dollars.

The economic skies are decidedly gloomier in the UKIan Stokes, Link Group

Mid-caps in particular saw a strong recovery, with their dividend growth rising more sharply than the FTSE 100.

Link expects headline payouts to fall 2.8 per cent in 2023 as one-off special payments drop and global economies slow or shrink. 

Underlying dividends, which strip out special dividends, will rise 1.7 per cent year-on-year to £86.2bn.

Source: Link Group

Ian Stokes, managing director, corporate markets UK & Europe at Link Group said the economic skies are “decidedly gloomier” in the UK and around the world than at this time last year.

“Company margins in most sectors are already under pressure from higher inflation and squeezed household budgets,” he said.

“Soaring interest rates are now crimping profits by raising debt-service costs too. This will leave less money for dividends and share buybacks in many sectors.”

Though there is optimism for 2023, with good growth from banks and oil producers. 

“Cuts made during the pandemic mean payout ratios are conservative on the whole...companies would also rather reduce share buybacks than cut dividends as cutting dividends is a very negative signal to give to the market.”

Sector growth

Banking dividends were the biggest driver of growth last year, representing a quarter of the increase in underlying payments. 

Oil companies, boosted by higher energy prices, rose their dividends by a fifth in 2022 despite large share buybacks, with Shell Group alone repurchasing £16bn of its own shares, according to Link, representing a third of the total buybacks last year.

However, mining companies saw a turn in fortune in the second half of the year as downward pressures on commodity prices pushed their dividends lower.