UK dividends rise as year-end approaches
Link’s latest dividend report highlights the strong recovery in UK dividends after the 2020 crisis, with UK plc third quarter earnings almost 90% higher than a year ago. Special dividends accounted for most of this increase, but without them the level of income paid to UK shareholders was more than 50% higher. As the end of the year approaches, Link has improved his forecast for 2021, but dividends paid by UK companies this year are expected to be below pre-pandemic levels after a deadly reset last year.
In his overview of UK earnings, Link says dividends in the last quarter reached almost £ 35bn, or £ 27.7bn excluding special dividends. The main contributors over the past three months have been the mining, oil and banking sectors. The surge in commodity prices this year helped resource companies generate billions of additional cash for shareholders, while UK banks were able to restart payments after a regulatory freeze in 2020. Mining companies have been at the heart of this strong recovery, accounting for almost £ 1 out of every £ 4 paid, according to Link. In the third quarter, mining companies paid out £ 23bn, more than the next five sectors combined. One of those companies that paid a disproportionate special dividend was BHP (BHP). The company, which plans to move its main listing from London to Australia, is expected to pay shareholders $ 15 billion this fiscal year. As of Q3 this year, the top dividend payers in terms of overall payouts were Rio Tinto, BHP and Anglo American, but around the same time last year the top three were Rio, British American Tobacco and National Grid – along with the In hindsight, Shell, Vodafone and HSBC were in the top slots five years ago.
Can the mining windfall continue for shareholders? As oil prices are at multi-year highs and target the $ 100 a barrel level, some commodities have retreated as investors readjust their expectations for global growth, especially China. Iron ore prices, for example, soared during the summer but fell sharply. Ian Stokes, managing director of corporate markets UK and Europe at Link Group, said the commodity is likely to lead to lower payments from mining companies next year. Overall, the extractive industries will account for almost a third of UK dividends this year. This leaves “UK equity investors uncomfortably dependent on two volatile and highly cyclical sectors for their income,” Link says. “This industry is highly cyclical … and companies are no longer wisely applying progressive dividend policies, which means payments will rise and fall with the commodity cycle.”
Special dividends are expected to continue into the fourth quarter, helping Link improve his forecast for the full year. “The special dividend boom reflects the way some companies are making catch-up payments, some are capitalizing on very high demand, and others are seizing the opportunity to sell assets in an era of high prices and many wealthy potential buyers. liquidity, ”says Stokes.
We are now in the fourth quarter and full year forecasts can be made with more confidence than at the start of the year. Overall dividends, including special offers, are expected to rise above the £ 93bn level, an increase of around 45% from 2020, when the overall income level fell to £ 62bn – the lowest since 2011. Excluding specials, Link expects dividends to reach £ 77 billion, a more modest increase of 22%. Looking at both the quarterly and annual bar charts, it’s clear that UK dividends still have a way to go before they return to the 2019 peak, which now looks like the climax – and a golden age for them. UK income investors.
Still, there are reasons for optimism: UK dividends (excluding promotions) are expected to return to their 2019 levels by 2024, now a year ahead of Link’s forecast. Unequal income recovery is still a key feature of this market – at this point in the year only five sectors have paid more than in the first nine months of 2019: e mining, food retail, basic consumer goods, general financial and health. Sectors of “mixed bags” include general retail, housing construction, consumer goods and services. The airline, travel and entertainment sectors remain weak spots, according to Link, with most companies paying nothing at all.
2022 is more of a mystery than the fourth quarter, but other sectors are expected to pick up some of the slack from lower mining payments. “With banks returning to strength and other sectors continuing to recover, we still expect growth in 2022, but dividends will face headwinds rather than benefit from the strong but windy breeze of 2021,” said Link’s Stokes. Special dividends are expected to decline from recent highs, but ordinary dividends are expected to rise again – even taking into account the nearly £ 5bn loss in income from BHP and Morrisons, which were recently deprived.