Forecasts for dividend pay-outs from FTSE 100 firms for 2023 have been revised downwards since Q2 this year, according to AJ Bell’s latest Dividend Dashboard, which now predicts shareholders will receive a total of £78.7bn for the year as opposed to £83.8bn.
However, the report, which is published each quarter, found analysts still expect single-digit growth from dividends for this year and in 2024. The new projected pay-out is also marginally higher than the £76.1bn paid out in 2022 – excluding special dividends.
Over the course of this year, pre-tax profits from the UK’s largest companies are expected to increase by 10%, according to AJ Bell, although this is a sharp decrease in the firm’s 19% growth estimate from last quarter. Russ Mould, AJ Bell’s investment director, said this was largely due to reduced profit forecasts from miners as investors remain bearish on China.
See also: Global dividends hit record £449bn as European equities and banks lead the way
“Falling profit forecasts are cutting into dividend estimates and even 4% dividend growth in 2023 would handily outpace the expected 13% drop in adjusted net income,” he explained.
“The disparity between forecasts for an increase in stated pre-tax income and adjusted net profit lies partly with increases in UK corporation tax, but also the absence of 2022’s asset and inventory write-downs or exceptional items, or mark-to-market portfolio losses at oils, insurers, real estate firms and investment trusts in particular. The adjusted net income number irons those out whereas the statutory pre-tax profit figure does not.”
He added that a return to the FTSE’s pre-pandemic £85.2bn pay-out in 2018 is “proving hard to achieve”.
“Analysts now expect a fresh high only in 2025 as estimates for 2024 are dribbling lower as well.”
Pre-tax profits
In terms of pre-tax profits, however, analysts are still expecting UK blue-chips to reach an all-time high of £254bn for the year – which is significantly more than during previous cyclical peaks such as 2018 at £194bn, and £179bn in 2011.
“Inflation has a role to play here, especially given the FTSE 100’s hefty exposure to commodities, and a return to health of the nation’s banks is also a big contributory factor,” Mould said.
“Cuts to 2023 estimates, thanks in the main to lower oil and industrial metal prices, do at least mean that 2024 is seen offering higher pre-tax earnings. This is in contrast to three months ago, when analysts were looking for more growth this year and then a decline in the next one.
“The current forecasts of 3% growth in 2024 and 2% in 2025 may not excite too many investors, although the economic outlook in the UK, and indeed globally, remains unclear, given that disinflation, deflation, inflation or stagflation all remain possible outcomes, each with markedly different implications for growth.”
Share buybacks
Despite the uncertain macroeconomic backdrop, UK companies look to be in reach of achieving record share buy-backs, with £46.6bn’s worth already having been announced. 2023 is therefore on track to be the second-best year ever for cash returns from the FTSE 100, according to the report.
“For all of the nerves that prevail, corporations are still putting a very brave face on it,” Mould continued.
“Forty-three of the FTSE 100’s members ran a share buyback programme in 2022 to return additional cash to shareholders and 37 index constituents have already announced plans to do so, or began cash returns via this mechanism, in 2023.
“These bumper cash returns supplement dividends. The FTSE 100’s members are on track to return £129bn to investors via ordinary dividends, special dividends and buybacks in 2023, again with the possibility of more buybacks in the final quarter. That compares to 2022’s all-time peak of £137.6bn.”
The investment director added: “It also takes the total cash yield from the FTSE 100 to 6.2%, a figure which nicely exceeds both the two- and 10-year gilt yields and even gives the prevailing rate of consumer price inflation of 6.7% a run for its money, at the time of writing.”
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