FTSE and UK dividends to hit all-time high in 2019

UK stocks paid out a record amount in dividends to investors in 2018. We have a look at the top dividend-paying companies and the outlook for UK dividends in 2019 and beyond.

What happened to FTSE & UK dividends in 2018?

Dividends paid by UK stocks hit an all-time high in 2018 with investors receiving a windfall just shy of £100 billion. Although it is the fourth consecutive year of growth the bumper distributions in 2018 were made against a tough backdrop for UK-listed businesses.

The growing uncertainty of Brexit, signs of a global slowdown in growth and rising trade tensions all weighed on share prices in 2018 despite the fact earnings have largely continued to grow: the FTSE 100 slid over 12%, the FTSE 250 fell more than 15% and both the FTSE All-Share and Small-Cap indices slipped 13%. Those sharp declines reflect the severe knock to confidence in UK stocks and their prospects, as well as heightened concerns that a global recession could be around the corner.

We have a look at why UK firms returned such considerable sums to investors and evaluate what could be in store for dividend payouts in 2019 and beyond.

UK and FTSE dividends: How much did UK stocks pay in 2018?

UK-listed companies paid a total of £99.8 billion to investors through ordinary and special dividends in 2018, up 5.1% from the year before. Excluding special dividends the total rose 8.7% to £95.9 billion.

According to shareholder services firm Link Asset Services, dividends continued to grow last year because profits continued to rise and special dividends, or once-off distributions, were higher than expected.

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Link Asset Services predicts payouts will hit another record in 2019 by growing another 4.2% to £104.1 billion or, without special dividends, 5.3% to £101.1 billion:

Dividends total

Dividends total

How did forex impact dividend payments in 2018?

The strength of the pound has a major impact on the amount paid in dividends by UK stocks. Firstly, those that have international operations have to convert foreign currencies into sterling which, depending on the exchange rate, can drastically change earnings. Secondly, around 40% of all dividends paid by UK-listed companies are denominated in dollars, meaning the total sterling sum moves in line with the prevailing exchange rate.

It was a tale of two halves for sterling in 2018. The devaluation after the EU Referendum in 2016 meant the pound was stronger against the dollar in the first half of the year (compared to the year before), knocking dollar-denominated dividends.

GBP/USD chart

GBP/USD chart

Although this started to unwind in the second half (H2) as sterling weakened against the dollar it failed to fully reverse the impact. According to Link Asset Services, the overall exchange-rate penalty for UK dividends last year was £1.3 billion.

Importantly, the firm believes this forex charge is still unravelling and predicts UK dividends will benefit by around £1.7 billion in 2019. However, that sum is somewhat speculative because the pound is still vulnerable to how Brexit pansout this year.

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Dividends: FTSE 100 vs FTSE 250

The FTSE 100 accounted for a staggering 86% of all dividends paid by UK-listed companies in 2018 while the FTSE 250 accounted for 11%. Investors in the UK’s top 100 companies enjoyed higher growth in ordinary dividends while mid-caps decided to distribute more through special payouts.

Overall, dividends paid by the FTSE 100 grew 4.6% to £86 billion while payouts by the FTSE 250 rose 6% to £11.2 billion. However, when specials are stripped out the FTSE 100’s distributions jumped 9.3% year on year compared to just 1.4% growth from UK mid-caps. This is because the constituents of the FTSE 250 are more reliant on the domestic market and do not have the international diversification of their larger peers to help weather the slowdown in the UK economy. Making a special payment to shareholders provides a company with much more flexibility in the future as it is a once-off, unlike ordinary dividends which tend to follow a progressive policy. With that in mind, the figures suggest mid-caps could be far less upbeat on future payouts than their blue-chip peers.

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In addition, the dividend yield of UK stocks is 'exceptionally high' at 4.8% compared to the historic average of just 3.5% over the past 30 years and the 3.6% recorded in 2017, according to Link. This has been the result of higher dividends and falling share prices. Importantly, it is blue-chip stocks that are behind this with a yield of 5% compared to mid-cap stocks that are below the 30-year average with a yield of 3.3%.

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What are the top-paying dividend industries in the UK?

Most industries managed to grow dividends in 2018.

The biggest improvement by far came from the mining industry which, having remerged from the latest cyclical downturn, have more than trebled payouts over the last two years. Glencore was the last of the ‘Big Four’ miners to restore its dividend to previous levels after tripling its payout year-on-year, making a big contribution to overall growth in UK payouts. Miners have always held substantial weight in the overall amount paid by UK-listed companies, accounting for about £1 in every £14 distributed. However, the jump last year means £1 in every £9 came from mining stocks in 2018.

The banking industry has been the top-paying industry for the last four years and cemented that position further in 2018. The reintroduction of the Royal Bank of Scotland's dividend after a decade long absence and Standard Chartered's decision to make its first payout since 2015 both made a big impact. Notably, momentum behind the growth was accelerating as we exited 2018: growing 5.3% for the year but up an impressive 26% in the final three months of 2018, pointing toward further growth in 2019.

Dividend by industry chart2

Dividend by industry chart2

UK and FTSE dividends: top-paying UK stocks

Shell, HSBC and BP remained the top three dividend-paying stocks in the UK (by total sum paid) in 2018.

The improvement in the mining and banking sectors is demonstrated in changes to the dividend leaderboard for last year. Rio Tinto, BHP Billiton and Glencore all moved up the rankings while Lloyds Banking Group, now paying more dividends out than it was before the financial crisis, also edged higher.

Elsewhere, British American Tobacco (BAT) was the standout performer. The tobacco giant paid out £4.4 billion last year compared to £3.5 billion in 2017, placing it in the top 5 for the first time. The 9% lift to the payout was exacerbated by the fact BAT had more shares in issue than the year before after issuing equity in 2017 as part of its takeover of peer Reynolds American. This, coupled with the sharp decline in BAT shares throughout the year, means the firm is on a yield of 8.5%.

GlaxoSmithKline, a dividend staple for UK investors, is expected to stay within the top five over the next couple of years as it merges its consumer health business with that of its peer Pfizer. But, once complete, it will be split into two businesses that, separately, aren’t expected to feature in the top five

Top 15 UK dividend stocks over 2013-2018

2013 2014 2015 2016 2017 2018
1 Shell Vodafone Shell Shell Shell Shell
2 HSBC Shell HSBC HSBC HSBC HSBC
3 Vodafone HSBC BP BP BP BP
4 BP BP GlaxoSmithKline GlaxoSmithKline National Grid BAT
5 GlaxoSmithKline GlaxoSmithKline Vodafone Vodafone GlaxoSmithKline GlaxoSmithKline
Subtotal £26.10 £39.20 £25.90 £32.10 £34.40 £33.80
% of total 36% 44% 32% 37% 36% 34%
6 BAT BAT BAT BAT BAT Vodafone
7 AstraZeneca AstraZeneca AstraZeneca AstraZeneca Vodafone Rio Tinto
8 Rio Tinto Rio Tinto Rio Tinto Lloyds Banking AstraZeneca AstraZeneca
9 BHP Billiton National Grid BHP Billiton National Grid Rio Tinto Lloyds Banking
10 National Grid BHP Billiton Imperial Tobacco Diageo Lloyds Banking Glencore
11 Glencore Xstrata Glencore National Grid Rio Tinto Imperial Brands BHP Billiton
12 Standard Chartered Diageo Glencore Imperial Brands Diageo Imperial Brands
13 Tesco Standard Chartered Diageo Unilever Unilever Unilever
14 Diageo Unilever SABMiller BT Group BT Group Diageo
15 Unilever Imperial Tobaco Standard Chartered Prudential Compass Group National Grid
Subtotal £15.80 £16.00 £17.60 £17.40 £22.30 £21.90
Top 15 total £41.90 £55.20 £43.50 £49.50 £56.70 £55.70
% of UK total 57% 62% 54% 58% 60% 58%

Outside of the top 15, a string of companies paid out better than expected special payouts late on in the year. Housebuilder Barratt Developments paid the largest special dividend in the fourth quarter (Q4) as it did the year before and peer Bovis also delivered a higher payout than anticipated, according to Link. Supermarket Morrisons, clothing retailer Superdry and stockbroker Hargreaves Lansdown also surprised with their special dividends.

UK dividend outlook: where next for payouts in 2019?

'If the UK or world economy does head into a recession in the next couple of years, that will feed through into dividends in due course, but for now, investors can take comfort from the solid income stocks are still providing' – Link Asset Services.

UK dividends are forecast to rise 4.2% to £104.1 billion or, without special dividends, 5.3% to £101.1 billion. While this is still a strong level of growth it does represent a slowdown from that delivered in 2018. Importantly, this assumes that forex delivers that very uncertain £1.7 billion boost this year. Still, if that forex gain is taken out of the equation then dividends should still be on course to grow 3.6% in 2019. The slowdown, according to Link, reflects the higher risks to growth and because the boon provided by miners is unlikely to be repeated this year.

The FTSE 100 is expected to yield 5.0% in 2019 compared to 3.3% for the FTSE 250, providing an overall average of 4.8%. The last time the prospective yield was that high was in the depths of the financial crisis in March 2009 and, before that, just before the 1991 recession. These high yields have mainly been caused by the falling valuation of stocks, which is likely to persist so long as investors remain uncertain about the UK market post-Brexit. Simultaneously, businesses are likely to continue returning large sums to investors because such uncertainty persists: it discourages firms from making large investments and leaves them with cash that shareholders would rather have returned than sit idle in the bank.


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