UK companies reached a new high in dividend payments during the second quarter, distributing a total of £36.7bn. This marks an 11.2% increase from the same period last year, according to Computershare’s latest Dividend Monitor, largely driven by special one-off distributions.
Without these special payments, the underlying growth was a modest 1% year-on-year, totalling £32.5bn. The slower growth rate was mainly due to UK mining companies, which continued to reduce their payouts, collectively cutting dividends by £2bn in Q2.
Despite the decline in the mining sector, the overall outlook for UK dividends remains strong. Excluding the mining sector, the underlying growth rate would have been 8.6%, with 16 of the 21 sectors reporting higher payouts. The report highlights that most sectors are benefiting from increased profits, leading to higher dividends and significant cash being spent on share buybacks. However, there are notable differences between companies and sectors, and international factors also play a role in shaping the dividend landscape.
Looking forward, mining dividends are expected to decline further following a steeper-than-anticipated cut announced by Glencore for the third quarter. Additionally, ongoing buyback programs across various sectors are putting downward pressure on overall dividends. Nonetheless, the Q2 data shows that most sectors are experiencing growth, and this trend is expected to continue in the second half of the year.
While the mining sector posed a challenge, UK banks emerged as the largest positive contributors, with high interest rates boosting their profits. Of the £4.1bn paid in special dividends during the quarter, £3.1bn came from HSBC, marking the fourth-largest special dividend in UK history. Including its regular dividend, UK banks paid out a total of £9.3bn, accounting for a quarter of all dividends during the quarter. This significantly offset the lower contributions from other companies, such as Close Brothers, which canceled its dividends this year due to a regulatory review of its car finance loans.
The outlook for UK income investors remains positive, with signs of economic recovery becoming more evident. Wage growth currently outpaces inflation, which, despite being a potential challenge for policymakers, enhances consumer purchasing power following recent financial hardships.
