Dividend payments from UK companies grew 8% on a headline basis during 2022, hitting £94.3bn by the end of the year, yet growth is likely to slow amid a gloomier economic outlook, according to Link Group’s dividend monitor.
Underlying dividends came to £84.8bn, jumping 16.5%, though this was somewhat offset by a drop of around a third in special payments.
Almost every sector delivered growth last year, according to the report, with a resurgent banking sector accounting for a quarter of the increase of underlying dividends.
In addition, soaring energy prices pushed oil payouts a fifth higher, though energy giants also undertook huge share buyback programmes, presenting an alternative route for surplus capital to reach shareholders. Link Group estimated that Shell alone repurchased £16bn of its own shares, almost one third of the buyback total for UK companies, and significantly more than it distributed in dividends.
Link’s data showed that companies bought back record numbers of their own shares in 2022, equivalent to 2% of the market cap of UK public companies, or over half the value of dividends paid during the year.
This was undoubtedly a headwind to dividends, and headline payments slowed to £12.4bn in the final quarter of 2022, a 5% year-on-year decrease. Sterling also began to find its footing towards the end of the year. For most of 2022, the weak pound had been a source of strength for the FTSE 100, providing an additional £3.8bn boost to payments declared in dollars.
See also: Equity income managers size up UK’s buyback bonanza
Though underlying growth was still 7% in Q4 2022, Link is expecting a slower rise in dividends in 2023 as the global economy shrinks, with managing director Ian Stokes highlighting the gloomier economic outlook for the coming months.
“Company margins in most sectors are already under pressure from higher inflation and squeezed household budgets. Soaring interest rates are now crimping profits by raising debt-service costs too,” he said.
The group predicts underlying dividends of £86.2bn in 2023, an increase of 1.7% year-on-year. After a couple of years of high special payments, excluding 2020, Link expects headline payouts will fall 2.8% to £91.7bn on the back of special dividends reverting to a typical year average.
Stokes added: “Even with lower mining payouts, there is good growth coming through from the banks and oil producers and across the wider market, 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. With the former so high, there is plenty of wiggle room. Finally, UK plc enters the recession with profits at a comfortable level compared to dividends and this will provide support.”
