Declining mining payouts led to UK dividends dropping 8.3% in Q3, according to the latest dividend monitor report from financial services firm Computershare.
A large decline in one-off payouts and a 23.6% drop in mining sector dividends saw the headline figure falling to £27.5bn in the three months to the end of September.
However, growth was significantly better outside the mining sector, reaching 7.2% on an underlying basis, with regular dividends up 2.4%.
The utility sector was the strongest contributor to growth, paying out a record £2.7bn, which was largely attributed to inflation-linked dividend policies.
The report highlighted large caps as the main drivers of UK dividend growth, with a number of mid-cap companies making cuts in Q3.
One in six companies across the UK market cut its dividend across the three months, with a significant proportion in the mining sector.
“Current reductions from mining companies are masking much better growth from the wider market, with the fourth quarter already delivering very encouraging growth,” said Mark Cleland, Computershare CEO.
“However, there is significant uncertainty about the outlook beyond 2023, and the extent to which UK and global economies respond to the rising cost of finance and tighter credit conditions will be an important driver of company earnings and therefore dividend growth.
“The banking and oil sectors remain healthy at present, but we anticipate a more challenging dividend environment ahead. Meanwhile, mining profits remain under pressure and, elsewhere, sectors sensitive to a hard-pressed consumer are more likely to feel the pinch.”
Declining special dividends
Declining one-off special dividends was a key contributor to the overall fall in pay outs, falling during by three quarters to just £835m in Q3, which reduced the headline growth rate by over seven percentage points.
For the year as a whole, the Computershare dividend monitor expects special payouts to be £7bn lower than in 2022.
Business disposals and combinations that form part of M&A activity are often a catalyst for one-off special dividends.
Computershare’s Cleland added: “Special dividends are volatile, but they are on a shrinking trend following a bumper couple of years.
“The shrinking continued in Q3 and reflects sector-specific factors, such as the downward phase of the commodity cycle, the dissipation of the post-pandemic catch-up – when some companies used special dividends to make up for a lack of payments during early days of the outbreak – and sharply lower M&A activity in 2023.”