UK Q2 dividend payout highest since 2008

UK firms made the largest cash payout this quarter since 2008, Capita Registrar’s latest dividend report has shown.

Dividends climbed 27% year-on-year to £19.1bn for the three months to June, a significant improvement on Q1 results which showed a rise of 10.3% or £15bn, and the fifth consecutive quarterly rise.

Much of the growth was attributed to the success of miners, which have seen their profits boosted by rising commodity prices. Payouts from the mining sector increased fourfold, from £491m in Q2 of 2010 to £1.85bn this year.

The largest effect on the total came from the £540m special dividend from Antofagasta, equivalent to 61p per share, and a £360m distribution from Anglo American, the first final dividend it has paid in three years.

According to Capita's report, most sectors experienced growth, with cyclically sensitive sectors growing dividends 35% in the second quarter, compared to 13% growth from defensive companies.

Charles Cryer, chief executive officer, said recovery has been broad-based: "Dividends are finally flowing freely again. Miners have taken the spotlight as they continue to make bumper profits from booming commodity prices, but growth is coming from almost all corners of the market."

However, the report acknowledged the year-on-year growth figures were flattered by BP's dividend cancellation in Q2 2010, which wiped £1.8bn off payouts. But even adjusting for the effect of BP's changes, Antofagasta's special dividend and the timing effect of 2010 payments, Q1 dividends still rose 16%, the fastest rate of growth in more than three years.

For the first six months of 2011, dividends totalled £34.1bn, up 19% on last year. Some 403 companies paid a dividend, up from 372 in the same period of 2010.

A total of 247 companies paid a dividend in Q2 2011, up from 221 over the same period last year. Encouragingly, only 32 companies made dividend cuts, which is "proof the dividend resurgence in terms of the amount of cash being paid to shareholders is not simply due to a few large companies making big improvements, but is a broad based return to making distributions across the market", said the report.

Cyclical sectors dominated the top rankings and fifteen of the fastest twenty growing sectors were cyclically senstitive, according to Capita. Mining, oil & gas and life insurance contributed £2.6bn of the £4.1bn of the total dividends for Q2. While the return of BP made the next largest contribution, followed by life insurers, adding £430m, then British American Tobacco at £232m.

The report also stated equity yields now surpass those of 10-year gilts, and the FTSE 100 is anticipated to yield 3.6% in total this year. The research noted the FTSE 250 has shown faster underlying growth than the FTSE 100.

Capita now forecasts total dividends for 2011 will be 16.9% higher than 2010's, but noted dividends will not catch up with 2008 highs until 2012 at the earliest, more likely 2013.

But Cryer said despite the positive results of the report, there are still risks of which UK companies need to be mindful.

"Finance directors may have relaxed their iron grip on corporate cash piles as the financial crisis has abated, but looming sovereign debt collapses in the eurozone may cause a renewed banking squeeze, leaving dividends back at the mercy of a need by companies to preserve cash for a return of tough times," warned Cryer.