After entire sectors slashed and burned dividend payout in 2020 as the coronavirus crisis struck, 2021 proved to be the year of the bounce back. Dividend payments made by companies listed on the London Stock Exchange rose by a whopping 46% last year to a total of £94.1 billion, marking their highest level in almost 5 years.
Data published by Link Group’s Dividend Monitor shows shareholder payouts returned to levels last seen in mid-2017 as companies not only reinstated or raised dividends but paid out on-off special dividends that totalled £16.9 billion. That’s three times the average total for special dividend payments over a year. Underlying dividends, excluding bonus payments, rose to £77.2 billion to bring them back to 2015 levels.
The midway point of last year can be pinpointed as the moment dividend payments rebounded after many were scaled back or cut altogether over the second and third quarters of 2020. The growth slowed to 13.5% over the fourth quarter last year before a large special dividend paid out by the Daily Mail and General Trust took the total to £14.1 billion, or 26% growth on the previous year.
However, Link Group does carefully highlight that 2021 was an especially “unbalanced” year for dividends that was warped by big payments made by mining companies whose profits rocketed as commodity prices soared. Payments made by mining companies were three times their long-term averages, made up almost 25% of all the dividends paid out by LSE-listed companies and made by far the biggest contribution to overall growth figures.
Another bonus for income investors was London-listed banks reinstating dividends more quickly than expected after they were banned from making payments the previous year with industrials also increasing payments by almost 60%. However, the diverse sector’s payouts are still 25% below where they were pre-pandemic.
Airlines, leisure and hospitality companies, among those worst hit by the pandemic, did not see dividend payouts rise again and are unlikely to be able to afford to do so for some time still to come. Consumer goods and pharmaceuticals companies also largely kept dividend levels flat.
Dividends growth is expected to drop to more normal levels of 5% this year, bringing total payments to £81 billion but special dividends are expected to fall significantly, bringing total payments issued down by 7% compared to last year. However, investors could be pleasantly surprised if commodity prices, especially energy and industrial metals, remain sky high.
Link Group managing director Ian Stokes commented on the report and 2022 outlook with:
“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.”
“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.”
“The proposed imminent departure of BHP 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.”