The latest Dividend Monitor from Link Group will be welcomed after a woeful 2020, with dividends hitting £94.1bn last year – an increase of 46.1%.
It follows a drop of 44% in 2020 when UK plc dividends ended the year at £61.9bn – the lowest annual total since 2011.
One-off special dividends added £16.9bn to the 2021 pot, which is three times higher than the average.
Excluding these specials, which perhaps formed some sort of recompense for the paucity of payments the previous year, the industry reported a more modest 21.9% rise for 2021.
The strong recovery in the second and third quarter was a reflection of the challenging conditions faced in 2020.
Fourth quarter growth excluding specials slowed to 13.5% but was rescued by a large special dividend from Daily Mail and General Trust (DMGT), resulting in a rise of 26.1%.
Miners drive annual increase
Mining companies delivered strong results in 2021, with pay-outs that were three times larger than the long-term average.
They accounted for almost a quarter of all dividends and were by far the biggest contributor to the annual increase.
Following in its wake were the banking and industrials sectors.
It wasn’t good news all round, however, as airlines, leisure and travel firms cut distributions by four-fifths for the second consecutive year.
Oil dividends were lower because reductions in 2020 took place later in the year, Link said.
The cancellation of BT’s distributions also meant that telecoms was the other main casualty.
Traditionally defensive sectors, such as food, basic consumer goods and pharma, maintained their dividends.
Mid-caps rebounded twice as strongly as the top 100, rising by 40.1% and 20%, respectively. Link said they benefitted from cancelled dividends being restored and the cyclical upswing to which they tend to be more sensitive.
Omicron, inflation and tax hikes cloud 2022 forecast
Ian Stokes, managing director of corporate markets UK and Europe at Link Group, said: “The recovery in UK dividends is not complete, but the easiest part of the catch up is now behind us. 2022 faces a number of headwinds in the form of Omicron disruption, inflation, and tax hikes and that adds uncertainty to our forecast.”
For 2022, Link expects underlying growth of 5%, bringing total pay-outs to £81bn. Special dividends are likely to be much lower, while UK equities are expected to yield 3.5% over the next 12 months.
“As the pandemic continues, it would be easy to take a knife to our expectations for dividends for the coming year. We are, however, cautiously optimistic that most sectors can deliver growth,” Stokes added.
“Banks and oil companies should be the main engines of progress in 2022. Mining companies can neither sustain this pace of increases nor likely repeat special dividends of this size. We are hopeful that their regular dividends are supported, however, given relatively firm commodity prices.
“The proposed imminent departure of BHP from London will help restore some balance to the UK index. The dominance of big mining groups has overshadowed the income generating capacity of the broader market and left UK pay-outs too heavily dependent on a single, highly cyclical sector.”