Dividends in 2018 broke new records reaching nearly £100 billion

Shareholder payouts from London-listed firms last year broke a new record, reaching nearly £100 billion thanks to rising profits and a slump in the pound.

The growth in dividends was lead by miners but the single largest contributer was FTSE 100-listed British American Tobacco paying out an extra £900 million. Lenders also did well, marked by the Royal Bank of Scotland’s first dividend since the financial crash a decade ago.

Dividends increased 5.1% in 2018 to £99.8 billion compared to the previous year, according the dividend monitor from Link Asset Services (LAS).

Excluding special dividends, shareholder payouts rose 8.7% to £95.9 billion.

A combination of higher profits, slightly better-than-expected special dividends, and the weak pound in the second half of last year contributed to the record annual haul.

The shareholder payout was achieved while the dividend yield – the proportion of a company’s yearly dividend compared to its share price -reached levels not seen since the depths of the financial crisis.

Tumbling share prices towards the end of last year and rising dividends produced the highest dividend yield for UK companies since March 2009 at 4.8%. The average yield over 30 years has been 3.5%.

Justin Cooper, chief executive of Link Market Services, part of LAS, said: “2018 was a terrific year for dividends but a terrible one for share prices. That’s pushed yields to extraordinary heights”.

He said a very high yield is often a sign of trouble ahead, as investors know that company earnings evaporate quickly when the economy turns down.

“Dividends are less volatile than profits, as companies tend to smooth the cycle, but they can still be expected to fall if the economy shrinks.

“We still expect 2019 to break new dividend records, but our forecasts are not especially bullish – one or two companies face difficulties and the easy wins from the mining sector are behind us”.

LAS said dividends would have to fall by a quarter for the yield to reach long-run average, far more than they fell in the financial crisis, but this would  be unlikely, even if a recession hits or Brexit doesn’t go well.

Mr Cooper said: “The current disconnect between the level of dividends being paid and share prices doesn’t obviously mean share prices must rebound any time soon.

“The yield may stay elevated for as long as uncertainty persists. But if the world does sink into a recession in the next couple of years, or Brexit goes badly, the drop in dividends is likely to be in the 10-15% range, not the 25% or so currently implied by the market.”