UK dividends had a strong start to 2022 with the adjusted underlying total rising to £13.3bn, according to Link Group’s dividend monitor.
UK dividends totalled £14.2bn in the first quarter, down 24.9% on headline basis owing to one-off factors, but after taking lower one-off special dividends and the departure of miner BHP from the London Stock Exchange (LSEG.L) into account, the adjusted underlying total jumped 12.2% to £13.3bn.
All sectors increased underlying payouts in the first quarter but oil companies led the growth, with dividends up 29%. Oil dividends were cut drastically during the pandemic when crude prices crashed. With the oil majors seeing a significant increase in their cash flow, there is now plenty of headroom for growth, the dividend monitor found.
“The war in Ukraine is partly responsible as it has pushed oil and metals prices ever higher, driving strong profits in related sector," said Ian Stokes, managing director, corporate markets UK and Europe.
"The oil sector is back – both in the black and in the headlines – though its distributions would have to double to regain pre-pandemic highs. In inflationary times, investors have often looked to commodities like these as a hedge against rising price levels elsewhere in the economy,"
Mining dividends are expected to surge higher again, with "very large" payouts in 2022 driven by soaring commodity prices and banking payouts continue their post-COVID recovery at a slightly faster pace than expected, according to Link Group.
"The mining sector cannot sustain its breakneck pace of dividend increases nor the size of its special dividends indefinitely, but the boom continues for now," said Stokes.
Pharmaceutical and biotechnology company AstraZeneca (AZN.L) saw its first increase for almost a decade.
BT’s (BT-A.L) dividend returned after the company suspended payments for the last two years due to the uncertainties caused by the coronavirus pandemic.
The property sector also saw a post-COVID rebound and retailers also began to make a come-back with large special dividends from fashion retailer Next (NXT.L) and variety store B&M European Value (BME.L).
Royal Mail (RMG.L) paid a special dividend, reflecting its strong trading during the pandemic boosted by a rise in online shopping.
Mid-cap dividends rose faster than the top 100, up 30.5% on an underlying basis. They had fallen much further during the pandemic so have more room for recovery, according to Link Group. However, they remained a sixth below their pre-pandemic total for the first quarter.
Link Group has forecast headline dividends to reach £92.2bn this year – £4.5bn higher than previously expected.
This is a 0.8% fall year-on-year reflecting lower one-off specials and BHP’s exit from the UK stock market. Underlying payouts of £85.8bn will be 15.2% higher than 2021, after adjusting for the BHP departure, Link Group said.
Link Group expects mid-cap companies to be hit harder by the constraints on consumer demand caused by the rise in the cost of living and from squeezed margins. The biggest companies should be "relatively insulated or are even benefitting," the Dividend Monitor found.
"There are risks to our forecast view of where dividends are heading, related to the constraint on consumer demand caused by energy price hikes here and around the world, and related to cost pressures that will weigh on margins for a number of sectors. Mid-cap companies are more likely to show any strain than the top 100,” said Stokes.