The war in Ukraine, rampant inflation and higher interest rates failed to affect dividend payments in the first quarter of 2022, according to the latest Link Dividend Monitor report.
Investors should expect the economic impact of the war to “take its toll” over the coming months, it said, but overall it sounded a positive picture, with a “more optimistic” outlook for the year, due to the post-pandemic recovery moving faster than was previously forecast.
In the first three months of the year, headline dividends were down almost a quarter (24.8%) at £14.2bn, although much of this was due to a bumper amount of special dividends in 2021 from the likes of Tesco and BHP.
On an underlying basis – excluding these one-off payouts – dividends of £13.3bn were 4.2% higher than the same quarter last year. Stripping out payments from BHP – which unified its shares and moved its primary listing to Australia at the end of January – this was 12.2% up on last year.
The total paid was slightly less than the £13.8bn forecasted, although this was largely due to housebuilder Persimmon, which distributed its dividend a few days later than last year, pushing the sum into the second quarter.
Oil stocks made the biggest to contribution in the first quarter of 2022, increasing payouts 29%, or £505m as the Brent crude spot price soared 47.1%.
Oil price rise in Q1 2022
Source: FE Analytics
“After oil dividends were cut sharply during the pandemic when crude prices crashed, there is a lot of headroom for growth now that the oil majors are enjoying a big increase in their cash flow,” the report said.
Overall, dividends from the oil titans were 16% higher year-on-year and the report suggested dividends from these firms are likely to top £9.5bn this year, up from the £7.3bn nadir during the pandemic but about half their pre-pandemic size.
There were also dividend increases during the first quarter in the consumer discretionary, healthcare and industrials sectors.
The outlook for the full year has improved since the last edition, with commodity and oil prices bolstering the prospects for two of the UK’s biggest dividend-paying sectors.
Although payouts from miners dropped 81% in the first quarter, this was due to BHP’s delisting. Mining companies made no significant contribution in the first quarter, but they will “make up for this later in the year”, the report said.
For example, the pace of mining dividend growth in the second quarter was expected to slow by half but (adjusted for BHP’s departure) will still be around 40%.
Ian Stokes, managing director of corporate markets UK and Europe, said: “The mining sector cannot sustain its breakneck pace of dividend increases, nor the size of its special dividends indefinitely, but the boom continues for now.
“Meanwhile, the oil sector is back – both in the black and in the headlines – though its distributions would have to double to regain pre-pandemic highs. In inflationary times, investors have often looked to commodities like these as a hedge against rising price levels elsewhere in the economy.”
Banking payouts continued their post-Covid-19 recovery at a slightly faster pace than expected, while the rise in healthcare dividends was due to AstraZeneca’s larger size following its acquisition of Alexion.
Link now expects headline dividends to reach £92.2bn this year, a fall of 0.8% year-on-year, reflecting lower one-off special payouts and BHP’s departure from London. Underlying dividends of £85.8bn should be 11.1% higher than 2021, (15.2% when adjusted for BHP).
Source: Link Dividend Monitor
“This year started as strongly as we expected, and we anticipate the rest of the year to surpass our expectations. The war in Ukraine is partly responsible as it has pushed oil and metals prices ever higher, driving strong profits in related sectors,” Stokes said.
There are risks to the forecast, he warned, largely related to a lack of consumer demand due to the cost-of-living crisis brought on by higher energy prices, as well as cost pressures on company margins, which must be passed on to prevent losses.