UK-listed firms paid record dividends last year, thanks to rising profits, but a report warns that shareholder payouts could take a big hit if Brexit goes badly.
Companies listed on the UK’s main market shelled out £99.8bn in dividends over 2018, marking a 5.1% rise from a year earlier, according to the latest dividend monitor report by Link Asset Services.
That all-time high was driven by a rise in profits, better-than-expected special dividend payments and the effect of currency exchange rates. Companies with international operations benefited from a decline in the pound as earnings in foreign currencies including the US dollar were worth more when translated into sterling.
Even in the fourth quarter, when dividends are usually low, payouts jumped 15.6% to £17.3bn.
British American Tobacco made the largest contribution after it paid £900m to shareholders. However, it was the mining sector that experienced the largest rise in dividends, which jumped 66% to £11bn.
Banks, including Standard Chartered, also raised dividends, with Royal Bank of Scotland announcing its first dividend since its government bailout in 2008. It amounted to £240m, £150m of which was pocketed by the Treasury as the UK taxpayer remains its largest shareholder at 62.3%.
The overall rise in dividends came despite falling share prices, with the FTSE 100 suffering its worst year in a decade amid concerns over global growth. The resulting yield on stocks – which measures price per share versus the dividend – rose to 4.8%. That is the highest yield since March 2009.
Investors are unlikely to see the same pace of dividend growth throughout 2019 as they did last year. Link Asset Services is forecasting a 4.2% rise in the headline figure, compared with the 5.1% in 2018.
Justin Cooper, the chief executive of Link, said: “Dividends are less volatile than profits, as companies tend to smooth the cycle, but they can still be expected to fall if the economy shrinks.”
Link still expects dividends to hit a record high total of £104.1bn in 2019 but Cooper said the forecasts “are not especially bullish”.
“One or two companies face difficulties and the easy wins from the mining sector are behind us,” Cooper added.
Brexit is also threatening to take a bite out of shareholder returns. “If the world does sink into a recession in the next couple of years, or Brexit goes badly, the drop in dividends is likely to be in the 10-15% range,” Cooper explained.
“But for now, investors can take comfort from the solid income stocks are still providing,” the report said.