UK companies paid their shareholders a headline GBP79.8bn in 2013, 1.0 per cent lower than in 2012 (GBP80.6bn), according to the latest UK Dividend Monitor from Capita Asset Services.
This is the first decline in annual dividends since 2010.
Although marginally ahead of Capita Asset Services’ GBP79.7bn forecast, underlying growth was actually poorer than expected. Underlying dividends were GBP77.4bn, up 6.8 per cent on 2012 on a like for like basis.
Furthermore, dividend growth slowed markedly as the year progressed, with a disappointing Q3, and with Q4 up just 4.4 per cent year on year. In cash terms Q4 still delivered a record for the fourth quarter, at GBP15.0bn, however. On an underlying like for like basis, FTSE 100 dividends rose 7.0 per cent, compared to 2.9 per cent from the FTSE 250 for the full year.
The decline in headline payouts is due to a sharp drop in special dividends in 2013, which fell by almost two thirds to GBP2.4bn (2012: GBP7.0bn) as big payments from Cairn Energy and Vodafone were not repeated.
For the coming year, Capita Asset Services’ forecast is GBP101.1bn, smashing the previous record set in 2012. This is due to the unprecedented GBP16.6bn dividend from Vodafone, which will be the largest single payment in UK corporate history. Capita now expects underlying dividends to rise 6.3 per cent in 2014 to GBP82.2bn, trimming almost GBP800m from its preliminary estimate for the coming year. Nevertheless, this still entails an acceleration in the run rate of dividend growth from the lacklustre 5.6 per cent of the second half of 2013.
Equities yield 4.2 per cent for the coming year (excluding Vodafone’s special), still significantly ahead of gilts which now offer 3.0 per cent for 10 years. But the gap has narrowed sharply as share prices have run ahead and bond prices have begun a long awaited correction.
At industry level, (barring the tiny tech sector) 2013 growth was fastest among industrials (up 15 per cent), with general industrials and engineering firms increasing payouts the most. The bigger consumer goods industry also did well, raising dividends nine per cent, with strong contributions from food and drink manufacturers. Companies supplying the booming UK car industry boosted payouts 20 per cent. Basic industries firms, which include metal and mining companies have seen a dramatic slowdown in growth, from 70 per cent in 2011 to 16 per cent in 2012 and four per cent in 2013.
Justin Cooper, chief executive of shareholder solutions, Capita Asset Services, says: “UK dividends ended 2013 with a whimper. Sustaining the stellar dividend growth of 2011 and 2012 was always going to be difficult, but in the event 2013 has been a harder year for income investors than expected. Growth is still there, but it has been slowing sharply. However, the coming recovery in corporate earnings offers a much brighter outlook and will herald a renewed acceleration in dividend payments.
“Dividends lag the earnings cycle for obvious reasons – companies have to make the profits before they can pay them – so we are only pencilling in fairly modest growth for the year to come, but 2014 will be buoyed by Vodafone’s huge payout. This will make 2014 a record year.
“Equity yields are still very attractive, even stripping out the Vodafone effect, and will provide crucial support for share prices despite the relatively high valuations at present. 2014 is also likely to see a very busy IPO market as the supply of new companies, pent up through the years of economic gloom, is finally unleashed onto the market. With investors earning GBP101bn dividends this year, money is there to buy the new firms seeking to list.”