Dividend Monitor Q2 2022

27 July 2022 / Link Group

UK dividends soar in Q2 as the pound flounders

• Dividends jumped 38.6% on a headline basis to £37.0bn, boosted by large special dividends and FX gains in particular
• ​Q2 saw the second-largest UK payout on record
• Underlying dividends (which exclude volatile specials) rose 27.0% to £32.0bn
• Falling pound added £1.4bn to the sterling value of UK payouts
• Three quarters of the year-on-year increase came from the UK’s three biggest dividend-paying sectors – mining, banks and oil
• Link Group increases its underlying forecast for UK plc dividends to £86.8bn, an increase of 12.5% compared to 2021
• Headline figure rises to £96.3bn, an increase of 2.4% year-on-year

UK dividends had a very good second quarter, according to the latest UK Dividend Monitor from Link Group. The headline total jumped 38.6% year-on-year to £37.0bn. Large one-off special payments were a key driver, but the underlying picture was good too. Underlying dividends, which exclude these volatile specials, jumped by 27.0% to £32.0bn, boosted by the weak pound. This was the second-largest quarterly total on record, for both headline and underlying figures, just shy of the all-time record reached in Q2 2019.

Mining dividends contributed almost a quarter of the headline total, rising 37% year-on-year on a headline basis. This was, however, slightly below Link Group’s expectations, once the boost from the weaker pound is taken into account. Mining dividends have quite likely now peaked.

A two-thirds increase in banking dividends mainly reflects the release of Bank of England constraints on payouts. Link Group expects banks to regain their position as the third largest dividend-paying sector this year for the first time since 2019.

Oil companies are growing their payouts swiftly, though less than the increase in energy prices would permit them to as share buybacks provide companies an alternative route to funnel surplus capital to shareholders. They rose 41% in the second quarter, but are still at half their Q2 2019 peak.

Housebuilders, industrial goods, media, travel, and general financials all had a very good second quarter, thanks to good profit growth (eg London Stock Exchange) and the boost provided dividends restarting following the pandemic (eg ITV).

In the second quarter, two fifths of the total dividends paid were denominated in US dollars, generating an exchange rate boost of £1.4bn to their sterling value. For the full year, the pound’s weakness is set to add £3.5bn to £4.5bn to the total.

Link Group has upgraded its UK plc dividend forecast for the full year thanks to the strong showing in the second quarter, coupled with the accelerating boost provided by the pound’s sharp fall and larger one-off specials. Core growth expectations are slightly weaker, however, reflecting the likelihood that mining dividends have now peaked.

Link Group now expects headline payouts to rise 2.4% in 2022 to £96.3bn, while underlying payouts (which exclude special dividends) to jump 12.5% to £86.8bn*¹.

Ian Stokes, Managing Director, Corporate Markets UK and Europe said: “Mining payouts are closely linked to the cyclical fluctuations in mining profits, and tend to rise and fall much more over that cycle than dividends from other industries. Concerns over global growth have pushed commodity prices sharply lower in recent weeks, though they remain high in historic terms. The sector has confounded expectations more than once before, bending their stated dividend policies at important moments. But if mining dividends have indeed now peaked, they will act as a brake on UK dividend growth in the next twelve months having provided the main engine over the last 24.

“The weakness of the pound is also proving a key swing factor this year. If it maintains its current level for the rest of the year, sterling is set to have its worst ever year against the dollar. The translated value of dollar dividends is therefore getting a very big boost.

“As we move into 2023, headwinds will strengthen. The easy post-pandemic catch-up effects are soon to wash entirely out of the figures, and an economic recession will crimp the ability and willingness of many companies to grow dividends.”

Download Link Group’s Q2 2022 Dividend Monitor here.

Download hereOpens in new window

[1] Link Group’s underlying forecast is £1bn higher than three months ago – reflecting FX effects. Its headline forecast is £4.1bn higher reflecting FX and special dividends.