Dividends soar again, here’s the sectors rewarding income investors
27th July 2022 10:49
by Sam Benstead from interactive investor
Link Group calculates that UK dividends rose nearly 40% in the spring to reach £37 billion. Sam Benstead examines the sectors that have been upping payouts.
Income investors were rewarded with the second largest payout of all time in the second quarter of 2022, as UK companies distributed £37 billion to shareholders, just shy of the all-time record reached in the second quarter of 2019.
The calculations, from investment administration firm Link Group, showed a 38.6% increase on the year before, boosted by a weak pound and special dividends. Underlying dividends, which exclude these volatile one-off payments, jumped by 27% to £32 billion.
Mining dividends contributed almost a quarter of the headline total, rising 37% year-on-year on a headline basis. This was slightly below Link Group’s expectations, once the boost from the weaker pound was accounted for.
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Mining dividends have quite likely now peaked, Link says, as commodity prices retreat due to recession fears.
Bank dividends increased by two-thirds. Link Group expects banks to regain their position as the third largest dividend-paying sector this year for the first time since 2019 behind mining and oil, following dividend controls implemented during the early stages of the pandemic. In 2021, banks were the fourth largest income-generating sector.
Oil companies are also growing their payouts swiftly. Dividends from the sector rose 41% in the second quarter, but are still at half the peak reached three years ago. Bumper profits from high energy prices are also being funnelled into share buybacks, which are a way of rewarding shareholders by reducing the share count.
Housebuilders, industrial goods, media, travel and general financials all had a very good second quarter, thanks to good profit growth and the boost provided by dividends restarting following the pandemic.
In the second quarter, two-fifths of the total dividends paid were denominated in US dollars, generating an exchange rate boost of £1.4 billion to their sterling value. For the full year, the pound’s weakness is set to add £3.5 billion to £4.5 billion to the total, according to Link.
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Link Group now expects headline payouts to rise 2.4% in 2022 to £96.3 billion on a headline basis, while underlying payouts are forecast to jump 12.5% to £86.8 billion.
Ian Stokes, managing director of corporate markets UK and Europe at Link Group, 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, although 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 12 months having provided the main engine over the last 24."
| Sector | 21Q2 dividends (million) | 22Q2 dividends (million) | Year-on-year change |
|---|---|---|---|
| Mining | £6,397.50 | £8,738.30 | 37% |
| Industrial Chemicals | £83.50 | £90.50 | 8% |
| Basic Consumer Goods | £1,709.50 | £1,654.70 | -3% |
| Food Retail | £583.20 | £668.50 | 15% |
| Food, Drink & Tobacco Producers | £2,159.90 | £2,632.20 | 22% |
| Airlines, Leisure & Travel | £73.20 | £154.40 | 111% |
| General Retail | £340.70 | £401.00 | 18% |
| Housebuilding, Consumer Goods & Services | £314.80 | £885.40 | 181% |
| Media | £766.00 | £951.70 | 24% |
| Motor Manufacturing & Parts | £0.00 | £6.50 | |
| Banks | £3,362.20 | £5,502.30 | 64% |
| General Financials | £1,559.20 | £2,044.10 | 31% |
| General & Life Insurance | £2,255.30 | £5,355.80 | 137% |
| Property | £711.80 | £854.00 | 20% |
| Healthcare & Pharmaceuticals | £1,549.60 | £1,471.10 | -5% |
| Building Materials & Construction | £624.20 | £721.30 | 16% |
| Industrial Goods & Support | £2,117.70 | £2,059.30 | -3% |
| Oil, Gas & Energy | £1,760.30 | £2,482.80 | 41% |
| Information Technology | £172.60 | £198.60 | 15% |
| Telecoms | £50.00 | £20.40 | -59% |
| Domestic Utilities | £110.30 | £126.30 | 15% |
| Total | £26,701.40 | £37,019.30 | 39% |
Source: Link UK Dividend Monitor Q2 2022.
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