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UK dividends jumped by 46.1% last year to a staggering £94.1bn on the back of bumper payouts from mining companies, according to the latest figures.
Payouts from companies in the UK is now at 2017 levels but the pace of recovery is set to slow in 2022, the latest Dividend Monitor from Link Group shows.
Dividends from mining companies accounted for almost a quarter of the UK total last year, and were the biggest contributor to the year’s increase in payouts overall.
The second biggest driver of growth was the restoration of banking distributions, but many sectors were able to refuel their payouts more quickly than seemed likely in January 2021 when the pandemic was in a peak.
The large and diverse industrials sector stood out with 59.8% growth, though its payouts remain below pre-Covid-19 levels.
One-off special dividends boosted the total of £94.1bn by £16.9bn, three times their normal level.
The second and third quarters saw the strongest rebound, reflecting the challenging conditions in the corresponding quarters of 2020, at the height of the pandemic.
Growth in the fourth quarter slowed to 13.5%, but a large special dividend from DMGT took the headline total to £14.1bn, 26.1% higher year-on-year.
For 2022, Link Group expects underlying growth – which excludes special dividends – to reach 5% and UK equities to yield 3.5% over the next 12 months.
Ian Stokes, managing director at Link Group, said: “The recovery in UK dividends is not complete, but the easiest part of the catch up is now behind us. 2022 faces a number of headwinds in the form of omicron disruption, inflation, and tax hikes and that adds uncertainty to our forecast.
“As the pandemic continues, it would be easy to take a knife to our expectations for dividends for the coming year. We are, however, cautiously optimistic that most sectors can deliver growth.
Airlines, leisure and travel, decimated by the pandemic, cut distributions by four fifths for the second year running, while oil dividends were lower because reductions in 2020 took place later in the year.
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Telecoms was the other main casualty thanks to the cancellation of BT’s (BT-A.L) distributions. Typically defensive sectors (such as food, basic consumer goods and pharma) held payouts flat.
“Banks and oil companies should be the main engines of progress in 2022. Mining companies can neither sustain this pace of increases nor likely repeat special dividends of this size. We are hopeful that their regular dividends are supported, however, given relatively firm commodity prices,” Stokes added.
“The proposed imminent departure of BHP (BHP.L) from London will help restore some balance to the UK index. The dominance of big mining groups has overshadowed the income generating capacity of the broader market and left UK payouts too heavily dependent on a single, highly cyclical sector.”