Company dividends soar 16% in a year

Companies flush with cash forecast to pay out £67bn this year

Western governments may be sinking under a mountain of debt, but many of Britain's largest companies are flush with cash and can afford to pay generous dividends to shareholders.

UK dividends topped £20bn in the third quarter, the first time that figure has been reached since April 2008. Payouts have jumped 15.9% in a year, according to Capita Registrars.

Banks are still struggling, but many London-based multinationals, from mining groups to drinks and luxury goods companies, have boosted their dividends, despite fears of a global slump.

In part, companies' willingness to part with their cash is due to their reluctance to write cheques to fund expansion at a time of macroeconomic uncertainty.

At the same time, investors are pressing for bigger payouts as income-producing shares are a boon during a period when they cannot bank on rising equity values.

Capita, which analysed figures provided by Exchange Data International, said £55bn was distributed to shareholders in the first nine months of 2011. That was just shy of the total payout for the whole of 2010.

Growth was strong enough to lead Capita to increase its forecast for 2011 by £1bn to £67bn, £10.6bn more than 2010. That would be an increase of 18% and the highest annual total since 2008.

Even after adjusting for the distorting effect of BP restoring its dividend and for some other one-off factors, dividends for the year will still grow a healthy 11%.

The prospective equity yield for 2011 is 3.8%, up from 3.6% in July; equity yields represent an unprecedented spread over bonds of 1.4 percentage points.

Charles Cryer, Capita Registrars' chief executive, said: "In real terms, dividends still have some way to go to top previous highs, but investors will be grateful that at least one asset class is providing a solid, inflation-proof income.

"But risks to capital are great, and the market may be judging that earnings, and therefore dividends, are vulnerable to a renewed economic slowdown. The jury is out on whether dividends can sustain this momentum next year."

Big company stocks exceeded the dividend growth of the mid-tier for the first time since the fourth quarter of 2009. Dividends from FTSE-100 companies increased 17%, almost twice the 9% from the FTSE-250. Even after adjusting for distortions such as BP, the growth was still slightly higher from Britain's largest companies.

For the first time since Capita began the research, all sectors increased their dividends in the third quarter (after distorting factors are eliminated). Cyclical sectors such as industrial companies and commodities significantly outperformed defensive sectors, increasing their dividends by 23% compared to the more modest (but more reliable) 10% increase from companies whose earnings vary less dramatically over the cycle – such as telecoms and tobacco.

The arrival of mining group Glencore on the stock exchange provided £224m for its shareholders, but other mining stocks paid an additional £200m between them, making miners one of the best performing sectors. Together, mining stocks have doubled their distribution in the first nine months from £2bn in 2009 to £4.1bn this year.


Richard Wachman

The GuardianTramp

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