UK dividend payments improved by 1.6 per cent during third quarter 2010

According to Capita Registrars, UK dividend payments finally returned to growth in the third quarter, 2010, after investors endured five consecutive quarters of rapid declines. Dividends grew between July and September for the first time since the first quarter of 2009.

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The underlying picture is positive. 200 companies paid a dividend in the third quarter, about the same as last year. The number increasing, starting, or reinstating payments to shareholders still outnumbered those who cut or cancelled their dividends by a very healthy 3.1:1.

Q3 dividends up by 1.6% - rolling twelve month total
down 7.8%

The rolling twelve month total of UK dividend payments, at the end of September 2010, was £57.0bn, down 7.8% from the same period a year earlier. However, there were a number of one-offs in the period, including:

  • timing effect of £200m of dividend payments brought forward to pre April 6th, 2010, in order to beat the introduction of the 50% top tax rate. The biggest of these was almost £130m from WPP Plc.

  • some small takeovers also meant dividends were no longer paid, but these were more than offset by almost £290m paid as a special dividend by Heritage Oil, and the switch to quarterly dividends by Unilever which added another £250m.

  • the cancellation of BP’s dividend had the biggest effect on the total paid. In Q3, BP would have paid out over 9% of the UK’s dividends, roughly £1.8bn-£2bn.

Excluding BP, Q3 dividends rose 13%, the fastest increase since Q1 2008.

During Q3, the top five dividend paying stocks, include:

These five companies paid out a total of £7.1bn in dividends in Q3 (41% of UK dividend payments to shareholders) in line with past years, but much less than the £8.1bn in 2009, when they accounted for almost half.

Vodafone paid £3bn this quarter, up 9 per cent on the final dividend paid last year. This was the single largest UK dividend payment made by any company in the last four years at least. It was responsible for almost half the top five dividends, and a massive 19% of all UK distributions in the quarter.

Last year, the top five were especially dominant because of the dramatic reductions in payments from elsewhere across the stock market.

Full year forecast raised to £55.7bn, down 5.1% on 2009, and 17% below 2008 peak

The strong showing in the third quarter means Capita Registrars has upgraded their forecast for 2010 by £1bn, expect now £55.7bn in UK dividend payments, down 5% from 2009.

This means UK companies will pay out 17% less to investors than at the peak in 2008. If BP had not been forced to cancel its dividend, the total amount returned to investors by UK companies would have risen 4% this year, roughly flat in real terms.

2011 dividends - initial views

According to Capita Registrars:

"2011 should see stronger growth. With BP making a full year’s payments, and broad expansion elsewhere, dividends looks likely to top 2010. Even if the economic recovery slows, we would expect payouts to continue to grow.

However, if we sink into recession again in the next three to six months, dividends will show the effects a short while later."

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