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FTSE: Miners and forex gains lift UK dividends to £37bn

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FTSE dividends rose thanks to good profit growth in stocks such as the London Stock Exchange. Photo: Jakub Porzycki/NurPhoto via Getty
FTSE dividends rose thanks to good profit growth in stocks. Photo: Jakub Porzycki/NurPhoto via Getty

UK dividends had a very good second quarter thanks to higher forex and mining payouts, according to the latest UK dividend monitor from Link Group.

FTSE dividends rose thanks to good profit growth in stocks such as the London Stock Exchange (LSEG.L).

Dividends jumped 38.6% year-on-year on a headline basis to £37bn ($44.5bn), driven by large special dividends and FX gains.

Underlying dividends, which exclude special dividends, rose by 27% to £32bn. This was boosted by the weak pound.

The monitor said this was the second-largest quarterly total on record, for both headline and underlying figures, just short of the all-time record reached in the second quarter in 2019.

Three quarters of the year-on-year jump came from Britain's three biggest dividend-paying sectors – mining, banks and oil.

Mining dividends contributed almost a quarter to the headline total, rising 37% on a headline basis, but slightly below the group's forecast, once the boost from the weaker pound (GBPUSD=X) is taken into account.

Payouts at oil firms grew in the second quarter despite higher energy prices, up 41% but are still at half their Q2 2019 peak.

That was "less than the increase in energy prices would permit them [oil firms] to as share buybacks provide companies an alternative route to funnel surplus capital to shareholders", the survey said.

Chart: Link Group
Chart: Link Group

Link Group anticipates banks to regain their position as the third largest dividend-paying sector this year for the first time since 2019, thanks in part to the release of the Bank of England's constraints on payouts.

According to the analysis two fifths of the total dividends paid were denominated in US dollars, generating an exchange rate boost of £1.4bn to their sterling value.

For the full year, the pound’s weakness is set to add £3.5bn to £4.5bn to the total.

Read more: FTSE 100 shareholders in line for £85bn dividends payout in 2022

It upgraded its UK plc dividend forecast for the full year thanks to the strong showing in the second quarter, coupled with the accelerating boost provided by the pound’s sharp fall and larger one-off specials.

However, core growth expectations are slightly weaker, reflecting the likelihood that mining dividends have now peaked, it said.

Headline payouts are now expected to rise 2.4% in 2022 to £96.3bn, with underlying payouts to jump 12.5% to £86.8bn.

Ian Stokes, managing director of Corporate Markets UK and Europe 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 twelve 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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