UK dividends soar in Q2

UK dividends jumped 38.6% year-on-year to £37bn, according to the latest UK Dividend Monitor from Link Group.

Large one-off special payments were a key driver, but the underlying picture performed well too.

Underlying dividends, which exclude these volatile specials, jumped by 27.0% to £32.0bn. They were boosted by the weak pound.

This was the second-largest quarterly total on record for both headline and underlying figures. It was shy of the all-time record reached in Q2 2019.

Source: Link Group

Mining dividends contributed almost a quarter of the headline total. They rose 37% year-on-year on a headline basis.

This was, however, slightly below Link Group’s expectations, once the boost from the weaker pound is taken into account.

Link Group believes that mining dividends are likely to have now peaked.

Link Group managing director, corporate markets UK and Eurrope Ian Stokes said: “Mining payouts are closely linked to the cyclical fluctuations in mining profits, and tend to rise and fall much more over that cycle than dividends from other industries.

“Concerns over global growth have pushed commodity prices sharply lower in recent weeks, though they remain high in historic terms.

“The sector has confounded expectations more than once before, bending their stated dividend policies at important moments.

“But if mining dividends have indeed now peaked, they will act as a brake on UK dividend growth in the next twelve months having provided the main engine over the last 24.”

A two-thirds increase in banking dividends mainly reflects the release of Bank of England constraints on payouts.

Link Group expects banks to regain their position as the third largest dividend-paying sector this year for the first time since 2019.

Oil companies are growing their payouts swiftly. They rose 41% in the second quarter, but are still at half their Q2 2019 peak.

Considering the increase in energy prices, it is not as much as oil companies could afford to. This is because share buybacks provide companies an alternative route to funnel surplus capital to shareholders.

Housebuilders, industrial goods, media, travel, and general financials also had a good second quarter.

This is thank to good profit growth (and the boost provided dividends restarting following the pandemic.

In the second quarter, two fifths of the total dividends paid were denominated in US dollars. It generated an exchange rate boost of £1.4bn to their sterling value.

Stokes said: “The weakness of the pound is also proving a key swing factor this year.

“If it maintains its current level for the rest of the year, sterling is set to have its worst ever year against the dollar.

“The translated value of dollar dividends is therefore getting a very big boost.”

Link Group expects headline payouts to rise 2.4% in 2022 to £96.3bn. It also believes that underlying payouts will jump 12.5% to £86.8bn.

Stokes added: “As we move into 2023, headwinds will strengthen.

“The easy post-pandemic catch-up effects are soon to wash entirely out of the figures, and an economic recession will crimp the ability and willingness of many companies to grow dividends.”

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