UK dividends jumped more than 50% in the second quarter, according to Link Group’s latest statistics, but the company warns of less favourable upside tailwinds ahead.
On a headline basis, Q2 dividends increased a “phenomenal” 51.2% to £25.7bn, while on an underlying basis, which excludes special dividends, payouts were 43.8% higher at £24.3bn.
Link said the main driving factor was companies restarting dividends during the period, which accounted for nine tenths of the increase year-on-year. It added Q2 2021’s figures compare with the low point of the pandemic in Q2 2020, providing an exceptionally favourable base.
BAE Systems, for example, was among a significant number of companies which returned to their usual schedule of paying a second-quarter dividend, having paid late in 2020.
Of the £8.7bn recovery in UK plc Q2 dividends year-on-year, mining and banking accounted for more than two thirds of the increase.
Mining dividends accounted for a quarter of the Q2 total at £6.3bn, largely due to Rio Tinto. Banks distributed £3.4bn during the quarter despite the PRA’s restrictions, with HSBC the largest contributor.
Link has raised its expectations for headline dividend growth this year to £79.5bn, up £2.5bn from its April forecast.
However, it said the upside tailwinds will get less favourable from here, reflecting the unwinding of Q2’s positive timing effects and increasingly more challenging year-on-year comparisons that reflect the progressive slowdown in dividend declines in 2020.
Link Group expects banking dividends to rebound now that regulatory limits have been scrapped, but not immediately to pre-pandemic levels as share buybacks will also feature.
Link Group managing director, corporate markets UK and Europe Ian Stokes said: “We have regularly cautioned over the last year that dividend patterns will be very noisy as we move through the recovery phase. This will make for choppy waters in the months ahead, but it does not mean we are pessimistic. Far from it. As normal life returns to Britain’s streets, so it is returning to business too.
“All the indicators of economic growth look very encouraging, and companies have come out of the crisis in most cases with their balance sheets looking strong. Resurgent profits and healthy bank balances mean more dividends for shareholders. These wider trends also help explain why the regulator has lifted the embargo on dividends from capital-rich banks.
“Before the pandemic, dividends reached £100.3bn, even before one-off special payouts were added, so the recovery has a way to run.”
