UK-listed companies announced a combined £7.2bn in dividends and share buybacks on Thursday, as the economic rebound and receding Covid fears allowed firms to resume bumper payouts to investors.
Big oil and miners dominated the dividend bonanza, with mining firm Anglo-American revealing the largest payout, worth a total of $4.1bn, after reporting its strongest half-year profit in the company’s 104-year history. It followed similar moves by Shell, drinks company Diageo and Lloyds Banking Group, which helped round out a bumper day for shareholders.
While environmental campaigners may decry the return of big profits for extractive industries, the payouts were welcomed by investors, who took a hit last year as the pandemic forced companies to rein in their spending and slash dividends to preserve cash. Vaccine rollouts and the gradual easing of Covid restrictions have helped lift consumer spending and some travel, giving hope that economic recovery is on the horizon.
“Investors have been struggling to set aside lingering worries about rising inflation and Covid cases, but bumper earnings from some of the UK’s biggest companies have done their utmost to offset that,” Danni Hewson, a financial analyst at AJ Bell, said. “Amidst all the gloom and angst of the last months, this is the kind of day investors will have been hoping for and one that will boost confidence that recovery with a capital R is well under way.”
Quarterly dividend payouts – based on when they were distributed rather than when they were announced – are still below their pre-crisis average of £29.4bn, according to researcher Link Group. However, they have already grown 51.2% to £25.7bn in the three months to June, compared to 2020. Rising commodity prices, which lifted miners and oil majors, as well as the Bank of England’s gradual removal of Covid dividend caps for the UK’s largest banks, fuelled the increase.
That trend has continued, as soaring global oil prices helped Shell report its highest profit in two years on Thursday, allowing the board to raise its dividend by nearly 40% and launch share buybacks worth $2bn. Meanwhile, the house buying boom and the return of consumer spending raised economic forecasts at Lloyds Banking Group, which swung back to profit and announced the resumption of dividends, with an aggregate £473m payout to shareholders.
Drinks company Diageo – which owns brands like Johnnie Walker whisky and Smirnoff vodka – announced share buybacks and dividends totalling £1bn.
“Companies that have seen a strong rebound in their earnings and cashflows have returned to good levels of dividends earlier than our initial expectations,” David Smith, fund manager of Henderson High Income Trust, said. “Also with the significant growth in dividends from the mining sector and restrictions on payments from banks removed, the outlook for aggregate market dividend growth for the rest of the year is positive.”
Earlier this week, miner Rio Tinto announced its largest interim dividend in its history, saying it planned to pay shareholders $9.1bn. Barclays, meanwhile, said on Wednesday that it planned to buy back up to £500m of shares from its investors, while also paying a half-year dividend of 2p a share, resulting in a total £800m return for investors.
But other industries including airlines and hospitality are still struggling to recover. “Other sectors look a little bit more beaten up,” Nick Hyett, an equity analyst at Hargreaves Lansdown said. “The travel sector, for example, historically paid reasonable dividends…[but] the airlines are not going to be coming back anytime soon.”
Even if travel rebounds, airlines will still have to service enormous debt piles built up during the Covid crisis, meaning that more work will need to be done to repair the balance sheet before dividends are even considered, Hyett said. He cautioned it could take years for aggregate dividends to return to pre-pandemic levels.
