UK Dividend Monitor Q3 2022

WEAK POUND DELIVERS £5.7BN BOOST TO UK DIVIDENDS IN 2022

Q3 payouts shrug off lower mining payouts as banking dividends surge

• UK dividends of £31.4bn were 1.0% higher on an adjusted headline basis in Q3, boosted £1.9bn by the weak pound
• Underlying dividends rose 4.0% to £28.1bn
• Lower share prices and a stable outlook for dividends mean equities will yield 4.2% over the next twelve months
• Upgrade to 2022 figures driven by further sterling weakness – headline payouts to rise to £97.4bn, up 11.0% on an adjusted basis[1]
• Underlying dividends will rise 13.4%[2] to £87.2bn
• Provisional 2023 forecast for UK plc dividends sees slight drop in headline dividends but modest underlying growth

Download our Q3 2022 Dividend Monitor to read the full report.

UK dividends dropped 8.4% to £31.4bn in the third quarter, according to the latest UK Dividend Monitor from Link Group. The figures were impacted heavily by the delisting of BHP. Excluding this effect dividends were 1.0% higher year-on-year. Sharply lower special dividends and falling mining payouts (even after adjusting for BHP) were offset by strength among banks and other financials as well as oil companies. The exceptional weakness of the pound also enormously flattered the figures (to the tune of £1.9bn) as many dividends are declared in dollars. The underlying total paid was £28.1bn, up 4.0%.

Q3 payouts were a touch weaker than Link Group expected, thanks mainly to some softness in consumer basics and a slightly bigger drop in volatile mining dividends than forecast. Special dividends of £3.3bn were down 43% year-on-year[1], driven by the end of the boom in metal mining.

A one fifth (-21.3%) decline in mining payouts knocked seven percentage points off the Q3 headline growth rate though the sector will still be the biggest payer in 2022 and perhaps even in 2023. Oil and gas payouts were up by a fifth (+18.9%) year-on-year, but the biggest contribution to growth came from banks and financials. Collectively their payouts jumped 49.3% (up £2.7bn) with Natwest making the largest positive impact. Industrials and consumer services also did well, but consumer basics (which saw very little impact during the pandemic) lagged behind.

Mid-cap payouts rose faster on an underlying basis than the top 100, reflecting the tail end of the post-pandemic dividend recovery, up 17.0% compared to 11.2%.

For the full year, the extraordinary surge in the US dollar will add a record £5.7bn to UK dividends, with an even bigger effect likely in Q4 than Q3. Link Group has duly upgraded its 2022 expectations for UK plc dividends to a headline £97.4bn, up 5.5% year-on-year (or 11.0% adjusting for BHP’s departure). Underlying dividends will rise £87.2bn, up 15.3% (or 13.4% adjusted for BHP and exchange-rate gains).

Ian Stokes, Managing Director, Corporate Markets UK and Europe said: 

“The economic backdrop in the UK and for the wider world has deteriorated markedly in the last three months. The sharp increase in bond yields has huge implications for asset prices, asset allocation, personal finances, and government deficits. For the first time in more than a decade, the UK 10-year gilt yield has risen above the yield on UK equities, even if only briefly. Suddenly income investors have more choice.

“Nevertheless, the high yield of the UK stock market signifies that more of the value of UK equities is grounded in the stream of dividends it provides. Although this also reflects a lower growth profile for UK Plc than, say US Inc, it also makes capital values less sensitive to rising longer term bond yields. Moreover, we do expect UK companies to continue to deliver dividend growth over the medium and long term, which provides a level of insulation against the rising cost of living.

“For 2023, we expect a further reduction in mining dividends and likely lower one-off special dividend but outside the mining sector there is still room for payouts to rise, even with a weakening economy. Our provisional 2023 forecast suggests a slight drop in headline dividends to £96bn and a slight increase in the underlying total to £89bn. This implies no change in our expectation that UK payouts will only regain their pre-pandemic highs some time in 2025.”

Download our Q3 2022 Dividend Monitor to read the full report.

[1] Adjusted for delisting of BHP

[2] Adjusted for delisting of BHP, special dividends and exchange rates