personal finance

Third year of record UK corporate dividends


Investors enjoyed another year of record dividends last year as a drop in sterling propelled growth, according to research that predicts “significant headwinds” in 2020.

UK companies paid out £110.5bn in dividends in 2019, an increase of nearly 11 per cent on the previous year and the third record-setting year as companies boosted payments to shareholders.

The total was propelled higher by £12bn in special dividends, up 300 per cent from last year, which compensated for otherwise muted dividend growth. Underlying dividends, which strip out special dividends, grew by just 2.8 per cent to £98.5bn, the smallest increase in five years. 

A weaker pound flattering payouts was responsible for almost three- quarters of last year’s underlying dividend growth, the report by Link Asset Services said. Many UK companies generate their earnings abroad and declare dividends in US dollars or euros. A weak pound and favourable exchange rate can significantly inflate the value of dividends when converted to sterling.

The drop in the value of sterling in 2019 from the year before inflated the value of dividends by £2.4bn in the first three-quarters of the year, enough to compensate for the relative rally in the currency in the fourth quarter. 

Excluding exchange rates, underlying growth was just 0.8 per cent, while dividends actually fell in the second half of 2019, according to the latest UK Dividend Monitor report. 

If the pound remains strong, Link predicts this could reduce the potential payouts that investors can expect in 2020. 

“The UK faces significant headwinds of the stronger pound, and the likely decline of special payouts to normal levels,” said Michel Kempe, chief operating officer at Link Asset Services. 

UK stocks are now sitting on a prospective yield — an expression of income in relation to share price — of 4.1 per cent in 2020, compared with a 30-year average of 3.5 per cent. 

In 2019, mining, banking and IT accounted for three-quarters of special dividends, a result that the Link said is unlikely to be repeated. 

Bank dividends rose by a third to £15.6bn, the largest payout to investors since 2007. The report said this is an indicator of “just how long it has taken for the sector to recover from the financial crisis”. 

The weakest performance came from telecoms, which fell by a quarter as most companies reduced or held their dividends, including a steep cut from Vodafone

The mining sector has been a major driver of dividend growth in the past three years, as the sector continued to recover from a rout in 2015 and 2016. However for each of the past three years, it was predicted that mining would be unlikely to continue to pay out at this rate and total dividends would suffer.

After 2017’s strong performance with a record-breaking £94.4bn paid out in dividends, Link predicted investors would suffer a “hangover” as there was “nothing on the horizon to match the scale of mining’s bounce-back”, said Justin Cooper, former chief executive of Link, at the time.

But the following year UK dividends again topped the record for investors with £99.8bn in payouts, when mining was responsible for the biggest dividend growth.

Dividends in 2019 were more than double their level 10 years ago, Link said. For every £20 an investor put into the market at the beginning of 2019, they were paid out an average of £1.02 from their shares.



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