UK Dividend Payments Surge to £34 billion in 3Q 2021 on Mining Bonanza

UK income investors have received a welcome dividend windfall in the third quarter, with dividend payments up a whooping 89% year on year, fuelled by bumper payouts from mining and oil companies as commodity prices soar.

The year on year growth in UK dividends although mostly attributable to special payments, there was still an underlying increase, leading Link Group, which compiles the data in its latest dividend monitor, to revise its forecast for the end of 2021 to a dividend increase of 45%.

Total shareholder payouts came in at £34.9 billion in the three months to September. Excluding one-off payments, dividend still rose by 53% to £27.7 billion.

UK dividend payments from miners were £12.8 billion

Dividends paid out by mining companies accounted for £12.8 billion of the total, with the soil and banking sectors also outsized contributors to the near-90% increase.

In its forecast for the full year Link Group says shareholders will receive £93.2 billion, a 45 per cent increase year-on-year. Within that, underlying dividends are forecast to increase by 22% to £77.4 billion, thanks to the large profits being made by mining companies.

Even though the bounce is impressive, Link points out that it is by no means a full return to the position pre-pandemic. Link says that in sectors outside of mining and energy, sectors are paying less that in 2019, with the overall level only a touch higher than the dividend payouts recorded  in 2018.

UK dividends: Over-reliance on extractive industries

However, the data shows the increasing reliance of the UK stock market on the volatile energy and mining sectors. A fall in commodity prices from recent highs would see a rapid impact coming to bear on mining and oil company bottom lines.

Another fact that could hurt UK income investors next year is the departure of mining giant BHP Group from London. Also Wm Morrison, the supermarket chain is also exiting. Combined, that will subtract distributions worth £4.9 billion.

Managing director UK and Europe corporate markets at Link, Ian Stokes, commenting on the 3Q dividend monitor data said: “Forecasting the rebound for UK payouts has been rather more difficult than working out where the cuts would fall last year.

“The recovery is certainly uneven and it has caused a growing concentration on extractive industry payouts – not a comfortable long-term position for income investors.

Dividend payouts in 3Q greater than expected at beginning of year

“The good news is that we have consistently seen companies deliver more in dividends than we thought likely at the beginning of the year in the depths of the UK’s longest, strictest lockdown. Now almost the whole economy here and in most developed countries is open for business, even if supply chains are in a mess.”

“With banks returning to strength and other sectors continuing to recover we still expect growth in 2022, but dividends will face headwinds rather than enjoy 2021’s strong, but blustery following breeze.”

Companies have been repairing their balance sheets since the pandemic ate into revenues and earnings by seeking out greater efficiencies in their business operations. Link expects these improvements to help to generate dividend growth going forward.

Link Group added in its press release statement: “The improving picture suggests underlying dividends may regain their previous high by the end of 2024, a year sooner than we penciled in at the beginning of this year.”