New research shows that UK companies continued to increase their dividend payments to investors in 2022, albeit at a much slower pace than in 2019.
As memories of the Covid-19 pandemic begin to fade, it is easy to forget the damage that was done to dividend payments from UK-listed companies. Early on in 2020, the Bank of England put a block on dividend payments from the major banks, a sector of the market that had always been a big provider of dividends. Then two other major dividend payers – Shell and BP – reacted to falling oil prices by slashing their dividends by 66% and 50% respectively.
Many more companies followed, either cutting their dividends or suspending them completely to preserve capital. By the end of 2020, the total dividend payout from UK companies was 42.7% down on 2019. Viewed another way, over £45bn of investors’ income disappeared in the space of 12 months. Even the global financial crisis of 2007/08 did not have as much impact.
In 2021, as the pandemic was brought under control, the dividend picture reversed almost as sharply. The total dividend payout rose by 42.9%. However, do not be fooled into thinking that meant all the lost income was recovered. Simple maths says that to recover from a 42.7% fall, we would need to see a rise of 74.5% (0.573 x 1.745 = 1.00). The total payout was still £19.4bn below 2019.
The latest data shows that in 2022, total payouts grew again but at a slower pace of 8.0%. That shrunk the gap with 2019 to £12.4bn. Most importantly for many investors, regular dividends (as opposed to the volatile one-off kind) rose by 16.5%.
At the time of writing, an investment in the UK stock market offers an average dividend yield of 3.4%. Many funds in the UK Equity Income sector, which focus on the higher dividend paying shares, have a yield of over 4.5%. The gap between equity yields and deposit rates has shrunk significantly since the start of 2022 as the Bank of England has consistently raised interest rates. That has tempted some income-seekers to keep their cash in savings accounts for the time being, rather than invest it. If that is you, make sure you take advice before making that your long-term strategy.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
31st March 2023