UK dividends have roared back after being decimated by Covid. Andrew Holt reports.
After the depressing debacle caused by Covid that left many equity investors short of income last year, UK dividends beat the most optimistic second quarter expectations to leap 51.2% to £25.7bn.
Even on an underlying basis – which excludes special dividends – second-quarter payouts were £24.3bn, 43.8% higher than a year earlier, according to Link. This was a sixth lower than their pre-crisis average, but nevertheless is an impressive recovery and has led to Link upgrading its headline dividend growth expectations for the year to 24.4%, meaning that £79.5bn will be handed to shareholders – a £2.5bn improvement on its previous forecast in April.
The rebound was largely driven by mining stocks, which returned a quarter of all dividends at £6.3bn, mainly thanks to Rio Tinto, while banks, still restricted by regulatory constraints, paid out £3.4bn.
However, this growth comes from a low base after three quarters of companies cancelled or cut their dividends in the second quarter of 2020. Indeed, 90% of the increases came from such companies.
A mix of restorations, timing changes and the increases by companies that traded well through the crisis all worked to deliver the stellar bounce-back.
However, these upside tailwinds will not last, according to Link, which points to the unwinding of the second quarter’s positive timing effects.
Yet there is optimism. Link expects banks to return more cash to investors now that regulatory constraints have been scrapped. However, these payments are unlikely to hit pre-pandemic levels immediately.
In the third quarter, Link expects dividends to reflect the new base with oil companies expected to pay £1 in £10 passed back to investors. This compares to almost £1 in every £5 distributed between April and the end of June due to the anniversary of all the reductions in the sector not yet passing.
