Figures released this week by financial ownership data administration firm Link Asset Services show that 2019 proved to be a record year for UK-focused income investors. London-listed companies paid out a total of £110.5 billion to shareholders between regular and special dividends. That represented 10.7% growth on the share of revenues paid out to income investors in 2018 and is the highest ever dividend figure.
The boost to returns coming from dividends will have been welcomed at a time of relatively stagnant investment but some worry it is a sign that British companies are under-investing in their future growth and sustainability. Dividend payments made by London-listed public companies now account for almost half of total investment. Just a decade ago, the sums spent on business investment were three times higher than the value of cash set aside for dividend disbursements.
Policy makers have highlighted a lack of corporate investment as a major contributor to the UK’s disappointing productivity in recent years. Tax efficiencies have even been introduced to encourage companies to invest more of their surplus, rather than hoarding cash or increasing dividend payments.
Investors themselves will likely have mixed feelings. Last year dividends provided shareholders with an average 5.1% return on investments on top of the 12% capital gain achieved by the FTSE 100 – the index comprised of the 100 largest companies listed on the London Stock Exchange.
Last year’s record dividends level is, however, thought to be unlikely to be repeated or improved upon this year. £12 billion of the total £110.5 billion paid out came in the form of special dividends. That was an exceptionally large sum in an historical context and wouldn’t be expected to be replicated in the immediate future.
Last year’s total was also helped along by a weak pound, which benefits companies that earn a significant portion of their revenues in dollars, euros and other major international currencies. With special dividends and currency gains taken out of the equation, regular dividend growth was, at just 0.8%, relatively weak last year. The lowest level of growth seen since 2016.
Link Asset Services forecast dividends to drop to £102.7 billion over 2020. That still represents an average yield of 4.1%, which is relatively strong, even if a drop on last year.
Dividend payments tend to be concentrated among the larger FTSE 100 companies. Last year they accounted for 85% of all dividends paid out by LSE companies, with just 13% coming from FTSE 250 companies and 2% paid out by companies not one of the largest 350 by market capitalisation.