Economic growth might be slumping back, but UK plc is in good financial shape. More evidence of that came in the shape of a study from Capita Registrars, showing that dividends paid to shareholders by UK-listed companies surged to an all-time high in the first half of 2012.
At £41.4bn, dividends paid out in the first and second quarters were 21 per cent higher than a year ago and comfortably above the previous high of £34.5bn in the first half of 2008. And while ordinary dividends grew by a solid 11.5 per cent over the period, the main factor behind the rise was a surge in one-off, special payments.
Special dividends have totalled an enormous £5.9bn so far this year, exceeding in six months the combined annual totals of the four years from 2008-11. Notable among these, Old Mutual returned £1bn to its shareholders following the disposal of its Nordic business, while GlaxoSmithKline paid an extra £277m after selling non-core North American assets.
Source: Capita Registrars and Exchange Data International
And while the vast increase in special dividends raises questions of its own, the general recovery in UK dividends since the financial crisis - when many were cut or curtailed sharply to safeguard balance sheets - bodes well for UK-listed shares.
Capita nevertheless notes that the large special dividends in 2012 mean it will be hard for dividends to grow rapidly in 2013. The company forecasts full-year dividends of £78.3bn for 2012 and 'just' £79bn-£81bn next year. Despite several companies accumulating large cash surpluses lately, the worsening global and domestic economic picture has left many firms reluctant to significantly increase corporate investment. Special dividends also allow companies to alleviate shareholder pressure to increase payouts, without locking themselves into progressive dividend policies that might prove unsustainable.
Source: Capita Registrars and Exchange Data International
What's more, of the 250 companies that paid a dividend in the second quarter, a large percentage of the total amount paid remains concentrated in just a few shares - in particular, Vodafone, Shell, GSK, BP and the big banks. This can pose problems when isolated, company-specific events cause one of the major payers of dividends to make a cut, such as when BP partially suspended its dividend in the aftermath of the Deepwater Horizon oil spill.
Still, as the chart above suggests, the overall trend for dividend payments remains positive - and since reinvested dividends account for such a large proportion of long-term returns, savvy investors will likely continue to be rewarded for their faith in the accountants in charge of company coffers.
