2021 was a much better year for regular dividends from UK dividend stocks. And if forecasts are to be believed, 2022 could be an even finer one as corporate profits recover further from the initial Covid-19 shock.
A report from Link Group shows total dividends from UK shares soared 46.1% in 2021, to £94.1bn. Regular dividends jumped to levels not seen since 2015, the financial data specialist added, to total £77.2bn. This was almost 22% higher from 2020 levels.
An abundance of special dividends in 2021 was the standout point from today’s report, though. These supplementary payouts jumped to record levels of £16.9bn last year, three times their normal level.
2021: an “unbalanced” year
Link Group describes 2021 as “a very unbalanced year” from a dividend perspective “with excessive dependence on mining companies”. It says that payments from these dividend stocks were three times larger than the long-term average. They also accounted for a quarter of all UK payouts.
The banking industry was the second-biggest contributor to last year’s growth, whilst payouts from the industrials sector jumped almost 60% year-on-year. Link Group says that dividends from defensive sectors like food, basic consumer goods and pharmaceuticals were basically held flat.
2021 was another tough year for airlines, travel and leisure companies, however, with cumulative dividends falling around 80% year-on-year for a second successive time. Oil dividends were lower because reductions here took place later on in 2020, Link Group says, while BT’s cancelled dividend also hit telecoms payouts hard.
What to expect from dividend stocks in 2022
In a cheery nod to 2022, Link Group says that “the recovery in UK dividends is not complete, but the easiest part of the catch-up is now behind us”. The organisation expects underlying dividends to rise 5% this year from 2021 levels, to £81bn.
Growth here stands at 8.9% when adjusted for the upcoming delistings of FTSE 100 shares BHP Group and Morrisons, too. BHP’s about to embark on a sole listing in Sydney, whilst Morrisons is being taken over by a private equity group.
On a headline basis, however, Link Group thinks total UK dividends will actually fall, though. This reflects lower-than-expected special dividends following 2021’s blowout performance. It expects additional payouts to drop 7% year-on-year to £87.5bn.
Cautiously optimistic
Link Group has suggested that the new year might not be a cakewalk for UK dividend stocks. It says that “2022 faces a number of headwinds in the form of omicron disruption, inflation, and tax hikes and that adds uncertainty to our forecast”. But the forecaster says that it remains “cautiously optimistic” that most sectors can deliver growth.
Banks and mining companies will be “the main engines” of dividend growth this year, Link Group reckons. It adds that mining firms won’t raise payouts at the same pace of 2021 nor pay such colossal special dividends. It did add though that it is “hopeful” that their regular dividends will be supported “given relatively firm commodity prices”.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
