Business is booming.

UK dividends expected to beat 2022 forecasts as energy profits soar

Investors in British companies can expect higher dividends this year than previously forecast, as higher oil and commodity prices brighten the outlook for shareholder payouts, an industry report has found.

Listed UK companies are on track to pay out £92bn to shareholders in 2022, including one-time payments, roughly in line with last year’s tally, according to funds group Link. The latest prediction marks an improvement from forecasts made at the start of the year.

It follows a surge in oil and commodities prices that has boosted the businesses of energy and mining groups. These are heavily represented on the London stock market.

“We anticipate the rest of the year to surpass our expectations. The war in Ukraine is partly responsible as it has pushed oil and metals prices ever higher, driving strong profits in related sectors,” said Ian Stokes, managing director of corporate markets for the UK and Europe at Link.

Dividend levels hit turbulence after Covid-19 struck, tumbling in the first year of the pandemic as companies conserved cash but then rebounding strongly in 2021 as businesses surfed the economic recovery. Despite the improvement, the 2022 forecasts still put payouts 18 per cent lower than in 2019.

The pace of the UK’s dividend recovery has lagged behind other major markets. Global dividends had fully recovered from the pandemic cuts by the end of 2021, according to Janus Henderson.

Lower and less stable dividends spell trouble for many retirees, pension funds and charitable endowments, which rely on shareholder payouts as a stream of income. The uneven run of dividends comes when the same groups are also battling fast-rising inflation, notably much higher energy costs.

However, the forces that are pushing energy bills higher have also helped the outlook for UK shareholder payouts, as oil and commodities companies rake in cash and lay plans to return it to shareholders. The two sectors rank as the UK’s biggest dividend payers.

The “mining boom”, prompted by surging prices, contributed about 80 per cent of the uplift in Link’s dividend forecast between January and this month, the company said.

Link said banks’ payouts had “[continued] their post-Covid-19 recovery at a slightly faster pace” than expected, while most sectors experienced some growth.

Excluding one-time special dividends and the departure of mining group BHP, a major payer, from the London market, underlying dividends are set to hit £86bn this year, Link forecast, up 15 per cent from last year.

Share buybacks, the other main route by which companies return money to shareholders, also enjoyed a bumper quarter. UK companies have so far this year announced plans to buy back their own shares worth more than £33bn, according to figures from investment platform AJ Bell.

The scale of buybacks this year is on course to break the previous annual record of £35bn set in 2018, AJ Bell said.

Although the outlook for shareholders looks brighter than it did at the start of the year, there are still clouds on the horizon. Stokes said the outlook was threatened by “the constraint on consumer demand caused by energy price hikes here and around the world, and related to cost pressures that will weigh on margins for a number of sectors”. 

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