- Banks and food retailers also boost returns to shareholders
- Headline figure set to fall this year, but underlying payouts will remain strong
A jump in the level of one-off payouts helped to boost dividend distributions by UK-listed companies last year by 46 per cent to £94.1bn.
Even with special dividends stripped out, underlying payouts to shareholders rose by 22 per cent to £77.2bn, according to Link Group’s latest UK Dividend Monitor report.
A boom in commodities prices meant that mining companies led the way, paying £6bn of the £16.9bn of special dividends. Three-quarters of that came from just two companies – BHP (BHP) and Rio Tinto (RIO). Miners paid out almost £21bn in total – a 160 per cent year-on-year increase.
There was also a rebound in payouts from banks. Lenders had distributed just £61m in 2020 as the Bank of England instructed them to retain funds to make sure they could cope with pandemic-related strains, but last year they paid out £5.9bn.
Food retailers were also generous with giveaways last year. Tesco (TSCO) was the second-biggest dividend payer (after Rio Tinto), returning £5bn to shareholders last February following the sale of its supermarkets businesses in Thailand and Malaysia. This comprised the bulk of the £6.2bn paid out by food retailers – a four-fold year-on-year increase.
Oil companies, by contrast, cut dividends by 25 per cent to £8.1bn.
Payouts are likely to be lower this year, due in part to BHP ending its dual listing in the UK and the delisting of Morrisons following its takeover by private equity firm Clayton, Dubilier & Rice.
Disruption caused by the Omicron coronavirus variant, inflation and tax hikes are all likely to cause headwinds this year, although Link Group said it is “cautiously optimistic” that most sectors will continue to deliver growth. Lower levels of special dividends will mean headline payouts are forecast to fall by 7 per cent to £87.5bn, but the underlying figure should increase by about 5 per cent to £81bn, it said.
“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,” said Ian Stokes, Link Group’s Corporate Markets UK and Europe managing director.
The prospective headline yield on the UK market for 2022 is still attractive at about 3.5 per cent, especially when compared with global indices, bonds or cash, said David Smith, fund manager of Henderson’s High Income Trust.
For selective investors, there are also “pockets of strong dividend growth from companies in the mid-cap area of the market”, he added.