Special payments push Q2 dividends to near record-breaking £37bn

The weak pound helped drive UK dividends up 38.6% during the second quarter of 2022, taking payouts to a near record-breaking £37bn, according to the latest dividend monitor from Link Group.

Carving out special payments; dividends for the quarter totalled £32bn, a respectable year-on-year rise of 27%.

Two-fifths of dividends were US dollar denominated, with exchange rates delivering a £1.4bn boost, double the level expected.

Both underlying and headline figures fell just shy of the all-time records set in Q2 2019, when a similar confluence of events – namely large special payments and a weak pound – delivered payments of £37.8bn and £32.4bn, respectively.

Muted miners and boisterous banks

Three quarters of the year-on-year increase came from the UK’s three biggest dividend-paying sectors: mining, banks and oil.

Of the £5bn specials uplift, £1.1bn was paid by mining giants Rio Tinto and Anglo American.

Long considered one of the most reliable dividend-paying sectors, Link Group believes payments from mining companies have peaked. Despite contributing roughly a quarter of the headline total, this fell slightly short of expectations.

One sector that looks more promising is banking, which recorded a two-thirds increase in dividends following the release of Bank of England constraints on payouts.

Link Group said it expects banks to regain their position as the third largest dividend payers for the first time since 2019.

Large pay outs from financial firms made the biggest contribution to special dividends, with Aviva the largest payer. During the quarter, it returned £3.75bn of surplus capital to shareholders, of which three quarters was distributed as a special dividend and the rest as buybacks.

The weakest growth came from the basic consumer goods (-3%) and pharmaceuticals (-5%) sectors.

A strong but not a red letter year

For the full year, Link Group expects dividend payments to reach £96.3bn, which would be 2.4% higher than the £94.1bn recorded in Q2 2021.

The strongest year for dividend payments on record is 2019, which saw shareholders pocket £112.4bn. This was followed by £101.8bn in 2018 and £97.3bn the year before that.

The full 2022 Link Group forecast is as follows:

  2022 2021 Year-on-year change
Q1 £14.2bn £19bn -25.1%
Q2 £37bn £26.7bn +38.6%
Q3 £30.1bn* £34.3bn -12.2%*
Q4 £14.9bn* £14.1bn +6%*
Total £96.3bn* £94.1bn +2.4%*

Ian Stokes, managing director, corporate markets UK and Europe at Link Group, 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 12 months having provided the main engine over the last 24.

“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.

“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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