Dividends bounce back - but investors warned over 2022 payouts

The return of payouts from the banks helped UK dividend investors enjoy a significantly better year in 2021, but growth is expected to be more modest in 2022.

Investors saw the recovery in dividend payouts continue in 2021, but there are warnings of a slowdown in 2022. Picture: Jon Savage.

Total dividends jumped by 46.1 per cent to £94.1 billion in 2021, although the headline figure was boosted by much higher special dividends than usual, according to the latest Dividend Monitor from Link Group

However, underlying payouts rose more modestly, up 21.9 per cent to £77.2bn and Link warned that during 2022 special dividends are “very likely to be much lower”, meaning headline dividends could fall 7 per cent to £87.5bn with underlying growth coming in around 5 per cent.

Ian Stokes, Link’s MD for corporate markets UK and Europe, said: “The recovery in UK dividends is not complete, but the easiest part of the catch-up is now behind us. 2022 faces a number of headwinds in the form of Omicron disruption, inflation, and tax hikes – and that adds uncertainty to our forecast.

“Banks and oil companies should be the main engines of progress in 2022. Mining companies can neither sustain this pace of increases nor likely repeat special dividends of this size. We are hopeful that their regular dividends are supported, however, given relatively firm commodity prices.”

Over the next 12 months, Link expects UK equities to yield 3.5 per cent, which David Smith, fund manager of the Henderson High Income Trust, said is still attractive, especially relative to global indices, bonds or cash.

“Also for the selective investors there are pockets of strong dividend growth from companies in the mid-cap area of the market who are adept at negotiating current cost pressures,” he said.

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