A report from the Link Group showed that UK dividends increased by 10.7% in 2019 to hit a record £110.5bn. That represents a payout of £1.02 for every £20 invested in the UK stock market.

However, excluding special dividends, which recorded their second highest contribution since 2014, and currency benefits from a weak pound, the underlying growth rate was a muted 0.8%, the lowest since 2016.

LARGE CAP GROWTH OFFSET BY MID AND SMALL CAP CONTRACTION

The FTSE 100 accounts for 85% of the total pay-out from UK companies and hit a record high of £94.1bn, boosted by a quadrupling of specials which reached £8.8bn. Underlying growth was 3.5%, but this was flattered by the weak pound. Adjusting for currency movements the top 100 dividends grew by 1.2%.

Source: Link Group

Mid-caps also saw a record pay-out, rising 11.8% to £13.9bn, with specials contributing £3.1bn, double the previous record.  Two-thirds of the specials came from Micro Focus (MCRO) and Signature Aviation (SIG).

Excluding specials the underlying picture was one of falling payouts, with an underlying contraction of 0.9%.

Small-caps lagged and registered a 5.2% year-on-year fall, hit by a sluggish domestic economy and some high profile dividend cuts by the likes of Kier Group (KIE).

MINERS AND BANKS STRONG CONTRIBUTORS, TELECOMS LAG

Mining companies saw a 42.5% growth in dividends to £15.7bn, propelling the sector to the second largest contributor for the first time. Since the commodity slump of 2015 to 2016, pay-outs have increased six-fold, with most of the gains emanating from special dividends from Rio Tinto (RIO) and BHP Group (BHP). Link Group doesn’t see this as repeatable and will act as a major drag on future dividend growth.

Banks saw pay-outs rise by a third to £15.6bn marking 2019 as the first year that banking dividends have surpassed their pre-financial crisis level.

Heavy investments and weak pricing contributed to a weak performance from the telecoms sector. Vodafone (VOD) was once a top 5 payer, but has since slipped down the rankings over the last three-years, while Centrica (CNA) cut its dividend in 2019.

2020 LIKELY TO SEE LOWER PAY-OUTS AND YIELDS

Share prices started 2019 on the back foot after steep declines in December 2018 and this meant that the effective yield was 5.1% for the full-year or 4.6% excluding specials, the highest since the financial crisis.

As we enter 2020, share prices are significantly higher and have risen 15% across the whole market. Higher prices mean lower yields and combined with Link Group’s forecast of a 7.1% fall in headline dividends or 1.1% fall excluding specials, the prospective yield from UK shares is 4.3%. Excluding special dividends the prospective yield is 4.1%.

While lower than 2019, the rate is still attractive compared with 10-year government bonds, which yield 0.74%.

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Issue Date: 27 Jan 2020