UK dividends could hit $115 billion in 2022 on weak sterling - report

By Joice Alves

LONDON (Reuters) - UK-listed companies could make $115 billion in dividend payments this year, the most since before the pandemic, with sterling weakness expected to boost the translated value of dollar-declared payouts, according to analytics company Link Group report.

Link Group expects headline dividend growth of 2.4% year-on-year to 96.3 billion pounds ($115.90 billion), the highest since 2019 after a whopping second quarter for UK dividends supported by a surge in payouts in the oil, mining and bank sectors.

Corporate payouts were bolstered in the quarter by FX gains as sterling has weakened 11% against the U.S. dollar this year.

"Exchange rates... will add significant impetus in the second half if sterling is unable to recover its poise," it said in the report.

Two-fifths of the total dividends paid in the second quarter were denominated in dollars, generating an exchange rate boost of 1.4 billion pounds to their sterling value, Link Group said. "This was double the level we expected in April based on the exchange rates at the time".

The second quarter saw dividends by London-listed companies jumping almost 40% to 37 billion pounds, just shy of the all-time record of 38.5 billion pounds reached in the second quarter of 2019.

Graphic: UK dividends -Link Group - https://fingfx.thomsonreuters.com/gfx/mkt/mypmnlrbjvr/UK%20dividends%20-Link%20Group.png

The UK’s mining, bank and oil sectors were responsible for three quarters of the year-on-year increase in payouts, supported by rising commodity prices and Bank of England easing constraints on payouts implemented during the pandemic.

Link Group, which provides shareholder management services as well as analytics, said it based its UK Dividend Monitor findings on publicly available data from companies listed on Britain’s main stock market.

"Most sectors either came in line with, or slightly ahead of our expectations thanks to generally strong profitability," it said.

Some of the biggest dividend payers this year included insurer Aviva, the world's biggest iron ore producer Rio Tinto and miner Anglo American.

For the second half of the year, Link Group has slightly reduced its core forecast to reflect the probability that mining dividends have peaked, it said.

"2022 will show very strong growth in payouts, partly owing to the ongoing post-pandemic normalisation and partly because mining companies have enjoyed such a long boom. Progress in 2023 is likely to be harder, however," the report said.

Housebuilders, industrial goods, media, travel, and general financials all had a positive second quarter too, while pharmaceuticals and basic consumer goods lagged behind.

Corporate payouts were bolstered also by 5 billion pounds in one-off special dividends.

($1 = 0.8309 pounds)

(Reporting by Joice Alves; Editing by Bernadette Baum)