Falling pound helps British dividends hit record high, but the boom won't last

Dividends from British companies surged by 39pc to £37bn in the second quarter of 2022, with a weak pound helping to add billions. 

Underlying dividends, which exclude special one-off payments, grew by more than a quarter to £32bn, just shy of the all-time high of £32.4bn in the second quarter of 2019, according to the data firm Link. 

The surge was partly thanks to the fall in the pound against the American dollar, Link said. Two-fifths of British dividends were denominated in dollars, which boosted the headline total by £1.4bn. 

The mining sector was another key driver behind the increase, as the war in Ukraine sent commodity prices soaring. The industry accounted for almost a quarter of total dividends in the period at £8.7bn, rising by 37pc compared with last year. However, Link warned that mining payouts looked close to their peak. 

Ian Stokes of Link said: “Concerns over global growth have pushed commodity prices sharply lower in recent weeks, though they remain high in historic terms. 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.”

The group also noted that while oil companies were growing their payouts – up 41pc year-on-year to £2.5bn – share buybacks were becoming an increasingly popular “discrete” method to return cash back to shareholders without appearing to profiteer from high oil prices. 

Link now expects that dividends will rise by 2pc to £96.3bn by the end of the year, with underlying payouts up 13pc to £86.8bn. 

However, Mr Stokes noted that 2023 looked more difficult for income investors. “The easy post-pandemic catch-up effects are soon to watch entirely out of the figures,” he warned. “An economic recession will crimp the ability and willingness of many companies to grow dividends.” 

Separate research from the Association of Investment Companies found that a third of the highest yielding investment trusts in London backed British stocks. Eight of these were classed as “dividend heroes”, which means they have raised payouts for at least 20 years in a row. 

The City of London investment trust boasted the longest track record of 56 years of dividend increases. The trust, which trades at a 2pc premium to the value of its net assets, has returned 2pc this year and has a dividend yield of 4.8pc. 

The JP Morgan Claverhouse and Murray Income trusts ranked second and third, with 49 and 48 years respectively of dividend increases. They offer yields of 4.7pc and 4.1pc.

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