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UK dividends hit record with £100 billion mark in sight

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UK dividends hit record with £100 billion mark in sight

Dividends from UK-listed companies hit £19.7 billion in the first three months of the year, a quarterly record, and are on course to pay out a total of £106.1 billion before the year is out.

Link Asset Services regular UK Dividend Monitor reported a 15.7% jump in dividends for the first quarter, with a huge £1.7 billion special dividend from miner BHP Group (BHPB) helping payouts reach a new milestone.

That means another record is now within sights, with the UK stock market set to yield £106.1 billion in dividends over 2019 according to Link's estimates, the first time payouts will have surpassed the £100 billion mark.

But dig beneath the headline numbers and the trends are less promising. Underlying dividends, which exclude special payouts, rose 5.5% to £17.6 billion in the first three months of the year, and two-thirds of that growth was due to exchange rate effects.

Link has downgraded its estimate for underlying dividends for 2019 to £99.7 billion, cutting its growth forecast from 5.3% to 3.9%, after slower-than-expected earnings growth.

The mixed message presented by the figures underlines the importance special dividends will play this year. Three companies are set to pay out more than £5 billion in special dividends between them in 2019.

BHP's £1.7 billion payout, the proceeds from its disposal of US shale oil interests, will be followed by Rio Tinto's (RIO) £3 billion special this Thursday, the proceeds of the sale of its Australian coal assets.

Royal Bank of Scotland (RBS), which only returned to the dividend register last year, will meanwhile deliver shareholders with a special payout of around £900 million at the end of the month.

The oil and gas sector maintained its longstanding place at the top of the dividend-paying table, followed by pharmaceuticals, together accounting for almost two-fifths of dividends paid out oin the first quarter.

Michael Kempe, chief operating officer at Link Market Services, said the growth in these two sectors was ‘almost entirely due to positive exchange-rate effects’.

‘With the exception of a small increase from BP (BP), the biggest companies all held their dividends flat on a constant-currency basis,’ he said.

‘Tobacco stocks, by contrast, raised their payouts substantially. Weaker sectors included telecoms, where BT (BT) cut its payout and Vodafone’s (VOD) was flat in euro terms.’

Kempe said retail payouts were ‘disappointing’ and there were notable cuts from Dixon Carphone (DC) and Debenhams (DEB), which has now gone into administration.

The report also highlighted a notable drop in payouts from the 'mid-cap' companies in the FTSE 250, reflecting ‘a slowdown in earnings growth for companies outside the multinational superleague’.

When special dividends and exchange rates were stripped out, dividends from FTSE 100 companies rose 2.6% over the quarter, while mid-cap payouts fell 2.5%. UK stocks are yielding 4.6% on average, a slight drop from the 10-year high hit in January, which Kempe said was ‘exceptionally attractive’ as it exceeds the yield on gilts, property, and cash.

Kempe said the first quarter was usually ‘just the warm up act for dividends’ but this year stocks had delivered a ‘stellar performance’. However, he noted that ‘uncertainty abounds’ in the stock market due to fears over the global economy and the outcome of the Brexit negotiations.

Investors continue to steer clear of UK equities, pushing up the yield on shares, which stands ‘a third higher than its long-run average’, he added.

‘Payouts would need to fall far more than they did even during the financial crisis to bring the UK equity yield back into line with the long-run average, and we just don’t see that happening,’ he said.

‘For UK dividends this year, a big unknown is the outlook for sterling, which is obviously entangled in the torturous twists and turns of the Brexit process. But over the long-term, exchange rates are just noise as losses one year are later compensated with gains.’

Top dividend payers in 2019 so far

Rank Company
1 Royal Dutch Shell (RDSA)
2 BHP (BHPB)
3 Astrazeneca (AZN)
4 BP (BP)
5 Vodafone (VOD)
Subtotal £10.1bn
% of total dividends 51%
6 British American Tobacco (BATS)
7 GlaxoSmithKline (GSK)
8 Imperial Brands (IMB)
9 National Grid (NG)
10 BT (BT)
11 Evraz (EVR)
12 Compass Group (CPG)
13 Persimmon (PSN)
14 Unilever (ULVR)
15 Intercontinental Hotel (IHG)
Subtotal £5.7bn
Top 15 total £15.8bn
% of total dividends 80%

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