UK dividend payments surge higher, beating expectations

Dividend payments grew by 51.2% in the second quarter of 2021. 

UK companies paid a total of £25.7 billion in the second quarter of 2021, beating expectations, according to the latest Link Dividend Monitor report.

Compared to the second quarter of 2020, dividend payments grew by 51.2% in the same quarter of this year, on a headline basis. When special dividends are stripped out, that fell to 43.8%, meaning underlying dividends stood at £24.3 billion in the second quarter.

Driving the growth of payments was companies restarting their dividends. In the second quarter of 2021, around nine-tenths of the increase came from companies that had cancelled dividends in Q2 2020.

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In the second quarter of 2020, companies around the world cut or cancelled their payments, due to the uncertainty of the Covid-19 pandemic. Now, with economic expectations mostly positive, many of those companies have since restarted payments. This has created a base effect, allowing for the 51.2% increase. In the second quarter of 2020, dividends fell by around 50% compared to the same quarter in 2019.

The three biggest dividend-paying sectors in the second quarter of 2021 were miners, financials and oil. Miners and financials collectively accounting for two-thirds of the increase in second-quarter dividends.  

Mining stocks paid out £400 million more than Link had initially expected, owing to soaring commodity prices. Rio Tinto (LSE:RIO) was the largest dividend payer. This was followed by HSBC (LSE:HSBA), British American Tobacco (LSE:BATS), GlaxoSmithKline (LSE:GSK) and Unilever (LSE:ULVR).

Midcaps saw the biggest bounceback in payment, reflecting the larger decline they suffered in 2020. Midcaps saw a 156% year-on-year increase, on a headline basis, in the second quarter. In comparison, the top 100 UK companies saw dividends rise by 44.4% on a headline basis.

Link now expects headline dividend payments to stand at £79.5 billion this year, £2.5 billion more than their April forecast. That would represent a yearly increase of 24.4%.

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Ian Stokes, managing director for corporate markets UK and Europe at Link Group, said: “We have regularly cautioned over the last year that dividend patterns will be very noisy as we move through the recovery phase. This will make for choppy waters in the months ahead, but it does not mean we are pessimistic. Far from it. As normal life returns to Britain’s streets, so it is returning to business too.

“All the indicators of economic growth look very encouraging, and companies have come out of the crisis in most cases with their balance sheets looking strong. Resurgent profits and healthy bank balances mean more dividends for shareholders. These wider trends also help explain why the regulator has lifted the embargo on dividends from capital-rich banks.”