Dividends to fall this year, report warns

A tapering of dividends in December could mean a leaner year ahead for shareholders as miners cut back after two bonanza-filled years, a report has warned.

However, the research from Link Group showed that while dividends would fall, an eventual recession would not lead to massive cuts across the board given how conservative payout ratios have been since the pandemic.

The forecast decline for this year was largely down to the miners: while the iron ore price has recently been boosted by China’s reopening, Rio Tinto, BHP (BHP) and Anglo American (AAL) will see profits come down as costs rise. Glencore (GLEN) likely has another very strong year ahead thanks to its coal division. Overall, dividend cover remains strong, as explained by the IC’s James Norrington here, so even with a recession, payouts should stay relatively high. 

Ian Stokes, Link Group’s managing director for UK and Europe corporate markets, said: “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. UK plc enters the recession with profits at a comfortable level compared to dividends and this will provide support.”

The report also showed 2022 dividends were driven by mining stocks, as in 2021. Shareholder cash returns from resources stocks rose 8 per cent on the year before, taking total payouts to £94bn, helped by a weak pound. Energy and banking were the highest-growth sectors because of skyrocketing gas prices and higher interest rates.

However, last year’s total payout was still below the pre-pandemic figure of more than £100bn, however, and equal to what was paid out in 2017. 

Oil and gas companies are still behind pre-pandemic levels, paying out £9.8bn in 2022 compared with more than £18bn in 2017, 2018 and 2019. The gap narrowed between last year and 2019 due to significant buyback programmes, and Shell (SHEL) rose back to second on the rankings, behind Rio Tinto (RIO)

These buyback programmes – BP (BP.) and British American Tobacco (BATS) also handed back billions this way – are also starting to have an impact on dividend payouts. Link said UK-listed companies had paid out £300mn less overall for the fourth quarter because of shares taken off the market.