UK dividends: how much are British firms paying their shareholders?

Britain’s stock market doesn’t always excite its participants. In recent years, investors have gotten bored of Brexit uncertainty, have yawned at uninspiring old economy companies in traditional industries like banking and energy, and lamented its decline into obscurity as the glitzy US’s high growth innovators of tomorrow have eschewed a much sexier narrative. But there’s one thing Britain is great at: dividends.

While its old world economy stocks aren’t always in favour with investors, what they are good at is kicking out cash and paying it to investors in the form of juicy dividends. Although capital values don’t shoot the light out, its strong dividend paying culture is appealing to those seeking to diversify their income from bonds or cash savings, and access the profits of Britain’s top firms.

What is more, over the past year in particular, old world economy stocks have come back into favour as cash generative businesses that can pay investors today becomes increasingly appealing in a world where tomorrow is increasingly uncertain.

And we are benefitting from the wider economic climate. Rising interest rates and high inflation means Britain’s traditional industries are becoming beneficiaries: high commodity and oil prices have boosted energy and mining stocks; rising interest rates mean banks are becoming more profitable.

This is feeding through into dividends – the cash companies pay investors out of their profits. According to Link, the 2nd quarter of this year saw dividends increase 38.6% year-on-year, to £37 billion. It results in Britain delivering the second largest quarterly total on record, just shy of the best in Q2 of 2019.

As expected, a big part of the hike has comes from special dividends – extra cash companies dole out when they are particularly profitable over a particular period – and from the UK’s three largest dividends paying sectors: mining, banking, and oil. More widely, companies are also proving themselves to be profitable in the current climate and have gone a long way to restoring their dividend programs following the pandemic, with most sectors either delivering or beating what analysts had expected from them.

For the next half of the year, Link expects strong dividends again and a boost from weak sterling given that many businesses, particularly in the FTSE100, derive profits oversees. As a result, estimates are £96 billion in dividends for 2022, up 2.4% from 2021. It means the market overall is expected to yield 3.7% this year – better than any savings account!

LINK group; July, 2022

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Marcus De Silva
Date published:
29 / 07 / 2022
Reading Time:
2 minutes