Economy shows green shoots of recovery as dividends fall at slowest rate in a year
UK dividends fell at their slowest rate in the first quarter in an encouraging sign the economy is starting to recover from the worst of the pandemic.
Payouts fell 26.7 per cent to £12.7bn in the first quarter year-on-year, according to Link Group’s latest Dividend Monitor. Since the nearly 50 per cent drop in payments in Q2 2020, the first quarter to feel the real effects of the pandemic, each successive quarter has seen a slower decline.
Over 12 months dividend payouts plunged 41.6 per cent with two thirds of companies reducing or cancelling their dividends entirely. In total, the pandemic cost investors £44.8bn in lost dividends from Q2 2020 to the first quarter of this year.
The biggest positive contribution in the first quarter came from Persimmon’s restored interim dividend, worth £398m, alongside an extra interim payout from Aviva.
On the other hand, the oil sector made up almost half of the cuts totalling £5.8bn in the first quarter. Other big reductions came from Compass, Primark owner Associated British Fods and Easyjet.
However the outlook is brightening especially now the temporary moratorium on banking dividends has been lifted, even at low levels. Link Group now expects underlying dividends to rise 5.6 per cent to £66.4bn with positive signs from miners, insurance , and media companies.
However it marks a slip from an expected increase of 8.1 per cent predicted in January.
“There are some big changes coming in the second quarter. During the pandemic, many companies that had been over-distributing permanently reset their dividends to more sustainable levels,” Ian Stokes, managing director of Corporate Markets EMEA, part of Link Group said.
“Most of these now hope to grow their dividends from this lower base. For others the effect of the cuts is more transitory so they will bounce back quickly.”
““Crucially we increasingly see limits to the downside this year, though we caution that 2025 still looks like the most realistic moment for dividends to match their 2019 high point,” he added.