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FTSE 100 to pay £81.5bn to investors in dividend bonanza

FTSE 100 A worker shelters from the rain under a Union Flag umbrella as he passes the London Stock Exchange in London, Britain, October 1, 2008.  REUTERS/Toby Melville/File Photo
2022 could become the best year ever for cash returns from the FTSE 100. Photo: Toby Melville/Reuters

FTSE 100 (^FTSE) companies are expected to pay a whopping £81.5bn ($91.8bn) in dividends this year, with 2023 expected to set a new record-high dividend bonanza.

London’s blue chip index is predicted to yield a 4.1% return in 2022, according to AJ Bell’s Q3 Dividend Dashboard.

At £81.5bn, dividends in 2022 are now expected to slightly undershoot the record payment of £85.1bn in 2018. But this forecast is for ordinary dividends only. There are another £1.56bn in special dividends and a record £50.3bn in buybacks that have already been announced.

“Total payments peaked at £85.2bn in 2018 and 2022 is flagging in its efforts to get closer to that mark, as analysts’ estimates for total payments lose ground. Concerns over increases in input costs, interest rates (and therefore the cost of capital) and a possible recession are all factors weighing on 2022, especially as metals prices are, in many cases, lower than earlier in the year,” Russ Mould, AJ Bell investment director, said.

“However, ongoing strength in oil and gas prices is giving support to estimates for 2023, for which analysts are still nudging up their dividend payment forecasts,” he added.

Financials are now expected to be the biggest contributor to FTSE 100 dividends in the coming year, following cuts to estimates for miners’ dividend payments.

“The lofty dividend cover ratio may also be the result of how more than one third of the FTSE 100’s members are running share buyback programmes as a means of returning cash to their shareholders.

“The aggregate total forecast for dividends, special dividends and share buybacks now totals £133.4bn for 2022, meaning it should surpass the £126.8bn combined figure achieved in 2018.”

FTSE 100 firms announced £36.7bn of buybacks in the first six months of 2022 and added £13.6bn more in the third quarter. That takes the total to £50.3bn so far this year, way in excess of the peaks of 2006 and 2018, which came in between £33bn and £34bn.

Three FTSE 100 firms are currently forecast to offer a double-digit yield in 2022 and twelve are expected to offer more than 7% this year – five financial companies, three housebuilders, two miners, one telecoms company and one tobacco firm

 

The ten firms forecast to £ have the highest yields in 2022.
The ten firms forecast to have the highest yields in 2022.

“At the time of writing, Persimmon (PSN.L) is the highest-yielding individual stock, while Rio Tinto (RIO.L) and M&G (MNG.L) are also expected to offer a double-digit yield in 2022.

“Forecast yields of more than 10% may make investors a little wary, given the shocking record of firms previously expected to generate such bumper returns. As such, nothing can be taken for granted, again especially if a recession hits,” Mould said.

AJ Bell also noted that there have been “meaty increases” in dividends at Glencore (GLEN.L), Shell (SHEL.L), HSBC (HSBA.L), AstraZeneca (AZN.L) and BP (BP.L).

They are expected to more than offset anticipated falls at GSK, Rio Tinto and Antofagasta, as well as the demotion of BHP and Ferguson as they switch their primary listings to Sydney and New York respectively.

The dollar’s strength against the pound is also boosting the value of payments in sterling terms from Glencore, Shell, HSBC, AstraZeneca and BP, as they all declare their shareholder distributions in the US currency.

“This again highlights the importance of the miners, oils and financials to the overall direction of FTSE 100 profits and dividends,” Mould said.

Watch: Charting for investing success in Q4 2022