UK dividends shrank 25% in the first quarter of the year, as a decline in special dividends was not offset by huge payouts from oil majors, miners and big pharma.
There was a total of £14.2bn paid in first three months of 2022, according to Link Group, down 24.9% due to more special dividends being paid a year ago and BHP’s moving its main listing from London to Sydney.
On an underlying basis, excluding specials and BHP, dividends were up 12.2% to £13.3bn.
Led by Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.), the oil and gas sector made the biggest contribution to the first-quarter increase, led by the huge spike in oil prices after Russia’s invasion of Ukraine.
“After oil dividends were cut sharply during the pandemic when crude prices crashed, there is a lot of headroom for growth now that the oil majors are enjoying a big increase in their cash flow,” said Link.
Mid-cap dividends rose faster than the top 100, up 30.5% on an underlying basis. They had fallen much further during the pandemic so have more room for recovery. Even so, they remained a sixth below their pre-pandemic Q1 total.
But among the FTSE 100, there were big payouts from AstraZeneca PLC (LSE:AZN) – the first increase from the drug developer for almost a decade, the return of dividends to BT Group PLC (LSE:BT.A) after a two-year hiatus, a post-Covid-19 rebound from the REITs and large special dividends from retailers Next PLC (LSE:NXT) and B&M European Value PLC and Royal Mail PLC (LSE:RMG).
For the whole of 2022, Link predicts another surge in mining dividends will drive underlying dividends up 15.2% to £85.8bn, with special dividends taking this to a grand total of £95.2bn.
While mining dividends were minimal in the first quarter, “they will be very large” in the second, according to Link’s UK Dividend Monitor.
Continued good growth in ordinary dividends is “a better indication of a company’s financial health and confidence”, said David Smith, manager of Henderson High Income Trust.
He added that while resources companies are boosting the outlook for underlying dividends for the remainder of the year, there are headwinds on the horizon.
“Slowing global economic growth could see commodities come under pressure and therefore mining dividends, surging inflation may temper the dividend growth of those companies most exposed to the consumer while some companies are likely to find it harder to continue to offset their own cost pressures with price rises or efficiency savings,” he said.
Having said that, he felt the UK is “still an attractive market for income”, with a dividend yield of 3.7%, significantly above the yield available on bonds or cash.