October 17th, 2011
Increasing Dividend Pay-Outs Everywhere
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Today, Capita Registrars -the data monitoring company- announced in its quarterly Dividend Monitor that dividend pay-outs during the third quarter are at their highest level, surpassing £20bn for the first time since the second quarter 2008.
So far this year £55bn has been paid out in dividends, compared to just £46.6bn during the first nine months 2010, and just short of the total dividend pay-out for 2010. Capita Registrars is forecasting £67bn in dividend pay-outs for 2011.
Dividend pay-outs from FTSE100 companies increased by 17 per cent during the three month period compared to a rise of 9 per cent dividend pay-outs recorded by FTSE250 companies.
Overall 228 companies paid a dividend in the third quarter, up from 201 during the same period last year. Of these, 196 increased, re-instated or started paying dividends while only 23 companies cut or cancelled them. This means the increases/reinstatements outnumbered the cuts/cancellations by 8.5:1, demonstrating how widely spread the improvement in income distributions is across the stock market.
Charles Cryer, Capita Registrars’ CEO said: “Dividends are growing faster than we expected. In real terms they still have some way to go to top previous highs, but investors will be grateful that at least one asset class is providing a solid, inflation-proof income.”
London-listed mining stocks were the most lucrative companies doubling their distribution in the first nine months from £2bn in 2009 to £4.1bn this year. With Glencore paying debut dividends amounting to £224m.
Top five companies pay-out £8.1bn during third quarter
Vodafone’s £3.5bn final dividend made it the top dividend payer of the quarter. Royal Dutch Shell, HSBC, GSK and National Grid were the other four, while Tesco dropped out of the top five this year to be replaced by National Grid. The top 15 companies between them paid out £14.8bn, 71 per cent of the quarter’s total showing the dependence UK investors have on only a few companies for dividend income.
All sectors paying dividends
For the first time since Capita began the research, all sectors increased their dividends during the third quarter (after distorting factors are eliminated).
Cyclical sectors (like industrial companies and commodities) significantly outperformed defensive sectors, growing dividends 23% compared to the more modest (but more reliable) 10% from those companies whose earnings vary less dramatically over the cycle (eg, telecoms and tobacco).
The three largest sectors paying dividends include mobile telecommunications, oil & gas and pharmaceuticals, totaling 39 per cent during the third quarter, exactly the same during the same period last year
The largest sector in cash terms was mobile telecoms with Vodafone’s £3.5bn dividend pay-out dwarfing the other listed mobile telecoms payer: Inmarsat. Traditionally, Vodafone tops the rankings for the third quarter.
The oil and gas sectors paid out £2.8bn, up 31 per cent, due partially to BP’s return to the dividend list, paying out £900m, while pharmaceutical company’s dividends rose by 10 per cent to a total of £1.7bn.
Year-on-year dividend growth during the third quarter was the highest in the basic materials sector, representing a dividend pay-out of £1.5bn –up -42 per cent- compared to the lowest: financials at just 6 per cent.
Dividend Prospects for 2011/2
Charles Cryer, Capita Registrars’ CEO said: “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.”
Growth in the third quarter was strong enough to lead Capita to increase its forecast for 2011 by £1bn to £67bn.
Cryer added: “In real terms they still have some way to go to top previous highs, but investors will be grateful that at least one asset class is providing a solid, inflation-proof income. A yield this high relative to bonds is very rare indeed, but risks to capital are great, and the market may be judging that earnings, and therefore dividends, are vulnerable to a renewed economic slowdown.”
Commenting on dividend prospects for 2012, Cryer said: “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”.
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Until next time.
Early Retirement Investor.com
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