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UK dividends fall 8.3% in Q3, Link Group raises full-year dividend forecast

UK dividends fell 8.4% in the third quarter following the delisting of BHP Group, Link Group reported.

BHP’s exit from the FTSE 100 in January saw total dividends fall to £31.4bn between July and September.

Excluding this exceptional event, UK equity dividends increased by 1% year-on-year. And on an underlying basis – in other words removing the impact of special dividends – payouts from London Stock Exchange companies rose 4%, to £28.1bn.

Sector differences

“The sharp drop in special dividends and lower mining payments (even after adjusting for BHP) were offset by strength in banks and other financial companies as well as oil companies,” Link Group said.

Payments from banks and other financial stocks jumped 49.3% year-on-year, while dividends from oil and gas producers rose 18.9% from the same period in 2021. Industrials and utilities consumers »did well tooon the dividend front during the third quarter, he commented.

However, weak dividends from consumer staples companies, combined with a larger-than-expected decline in volatile mining dividends, caused third-quarter payouts to fall short of Link Group’s estimates.

He said dividends on mining stocks fell 21.3% between July and August. Although he added that the sector “will still be the biggest payer in 2022 and maybe even 2023”.

Falling pound drives up dividends

Weakness in the pound in the third quarter pushed up UK dividends by £1.9 billion in the interim. Indeed, many payments are declared in dollars.

Link Group has raised its UK dividend forecast due to the sharp fall in the pound against the US dollar.

He said that “the extraordinary surge in the US dollar will add a record £5.7bn to UK dividendsthis year. He added that the impact of currency fluctuations will be even more pronounced in the current quarter than it was in the third quarter.

2022 dividends up 5.5%

Due to the recent fall in the share price, the yield on UK equities now stands at 4.2%, according to calculations by Link Group.

He now thinks UK dividends will hit £97.4bn in 2022. That’s a 5.5% year-on-year increase, or 11% if BHP Group’s exit from the FTSE 100 is taken into account.

On an underlying basis, total dividends are expected to reach £87.2bn, up 15.3% (or 13.4% excluding the BHP Group withdrawal and currency effect).

Dividends will reach pre-pandemic highs in 2025

For 2023, Link Group expects aggregate dividends to drop to £96bn. But he thinks payments on an underlying basis will rise slightly to £89bn.

He said that “we expect a further reduction in mining dividends and probably a drop in one-time special dividends.” He added that “outside the mining sector, there is still room for payments to increase, even with a weakening economy.”

“This does not imply any change to our expectation that payments in the UK will not return to their pre-pandemic highs until 2025,” Link Group said.