UK dividends jump in 2011, despite market volatility

Payouts from UK companies are expected to rise by18% this year, as UK dividends have defied the recent market turbulence

UK dividends topped the £20bn mark in the third quarter, according to the latest Dividend Monitor from Capita Registrars, the first time they have been at that level since the second quarter of 2008, before the peak of the financial crisis.

Dividends were 15.9% higher than in the third quarter of 2010, helping shareholder payouts in the first nine months of the year total £55bn, just short of the total payout for the whole of last year.

For the first time since Capita began the research, it saw all sectors increase their dividends in the third quarter.

“Dividends are growing faster than we expected as UK firms shrug off the worst stock market conditions since 2008 and continue to increase payouts to shareholders,” said Capita Registrars’ chief executive officer Charles Cryer.

Dividend growth in the FTSE 100 has outpaced the FTSE 250 for the first time in seven quarters, as payouts from blue chip companies rose by 17%, compared with the 9% increase seen in mid cap stocks. “Even after adjusting for distortions like BP, the growth was still slightly higher from Britain’s largest companies,” Capita said.

Oil giant BP, which stopped paying dividends last year due to the Gulf of Mexico oil spill, restored its quarterly payments in early 2011.

Capita Registrars now expects dividend payments will rise by 18% to £67bn in 2011, higher than the 11.5% increase the group forecasted in January.

The growth seen this year has reversed the downward trend seen in 2010 when payments fell by £2bn to £56.5bn, with BP responsible for all of that shortfall and more.

The dividend yield – which equals the dividend per share divided by the price per share – is 3.8% in September, up from 3.6% in July, as rising dividends were met with falling equity prices of the summer period. As of Monday afternoon (17 October), the FTSE 100 was trading around the 5,400 mark, over 10% lower since the 6,091 level was hit in early February.

Cryer added, “The jury is out on whether dividends can sustain this momentum next year. Capita still expects dividends to grow, but the headline rate is likely to be somewhat slower.”

“Investors can at least take comfort that firms are well capitalised, more so than at the time of the last major financial crisis, and are better able to withstand renewed turmoil”.