Dividend payments among the UK’s listed companies hit a record high in 2019, however smaller companies lagged behind the bigger players in raising their payouts.
In its UK dividend monitor report for 2019, financial data firm Link Group reported that divis in the year had jumped 10.7% to £110.5bn, boosted by what it said was an “exceptionally large” £12bn-worth of special dividends.
However, underlying dividends, which exclude specials, rose by just 2.8% to £98.5bn, the slowest pace since 2014, and were also flattered by exchange rate gains during the year as a result of a weaker pound.
For yields, Link reported that UK equities had delivered their highest effective yield since the financial crash of 5.1% for the year, or 4.6% on an underlying basis.
Given share prices started 2020 at “significantly higher levels” than 2019, Link said this yield will fall back to an underlying rate of 4.3% in the coming year.
However, analysts highlighted that equities continued to “provide the most attractive income” across asset classes.
Oilers and miners lead the charge
In terms of sectors, oilers were the biggest payers by a comfortable margin despite flat growth year-on-year, while mining firms saw the biggest increase in headline growth, surging 42.5% to £15.7bn thanks almost entirely to special dividends from blue-chip miners Rio Tinto plc (LON:RIO) and BHP Group PLC (LON:BHP).
Banks also provided strong growth as they continued to recover from the effects of the financial crisis, rising by a third to £15.6bn following increases from major players such as Barclays PLC (LON:BARC) and Standard Chartered PLC (LON:STAN) as well as a £2.5bn special payout from Royal Bank of Scotland Group PLC (LON:RBS).
Link also reported “solid growth” from tobacco companies and smaller payers such as supermarkets.
Telecoms, meanwhile, put in the weakest performance for the year, with divi payments falling by around a quarter as several companies trimmed their payouts, some steeply as in the case of Vodafone PLC (LON:VOD).
Top 100 steamroll smaller firms
The UK's 100 biggest firms made up for the vast majority of payments during the year, 85% of the total, as well as delivering growth of 11.1% to a record high of £94.1bn.
Meanwhile, the next 250 biggest companies also saw strong year-on-year growth of 11.8% to hit its own record of £13.9bn and 13% of the total.
Smaller companies were the laggards with payments falling 5.2%, a trend Link attributed to the UK’s sluggish economy and high-profile dividend cuts from firms such as construction group Kier Group PLC (LON:KIE).
Dividends from firms outside the top 350 companies also made up just 2% of the total dividends for the year.
Decline predicted for 2020 but payouts still hefty
Looking forward, 2020 is unlikely to provide any growth for dividend hunters, with Link predicting that the lessening of political and economic uncertainty will lift the value of the pound, in turn reducing the sterling value of divi payments made in euros and dollars.
Analysts are expecting headline dividends to fall 7.1% to £102.7bn in the year ahead, with underlying payouts also forecast to decline 0.7% to £97.9bn. Although this is still a hefty amount and mainly down to the absence of 2019’s bumper crop of special dividends.
Link said they do not expect divi increases from oil majors BP PLC (LON:BP.) or Royal Dutch Shell PLC (LON:RDSB), despite a jump in oil prices, as both companies are “still rebuilding dividend cover ratios”.
Traditional engines of dividend growth, miners and banks, are also not expected to grow significantly, resulting in a fairly flat outlook across all of the UK’s top 100 listed companies.
However, Link added that the more domestically focused mid-caps could see “a small uptick” in payouts as UK economic growth picked up and the squeeze on mid-cap earnings moderated.