Dividend payments still scarce for investors
Shareholders are still mourning a drop off in dividend payments in the first quarter, although the rate of decline is now at its slowest since the start of the recession.
UK companies paid out £13.6 billion in dividends during the first three months of 2010 - down 2.5% on the same period the previous year.
Some 186 companies paid a dividend, up from 161 a year ago. Of these, 56 companies cut or cancelled their dividends, 30 held them unchanged, but 102 increased or reinstated their payments.
Banks and oil giants were among the worst offenders with HSBC slashing £670 million off its payouts and BP and Shell cutting their dividends by a collective £330 million.
Paul Taylor, head of dividends at Capita Registrars, says: "Our heavy reliance on a few big companies for our dividends makes investors hostage to fortune.
The oil companies have been hit by tighter refining margins, while HSBC has been resetting its payouts at a lower level for the last 12 months.
"Even very strong performance from the rest of UK plc will make it difficult to make up for weakness at the top - as a result we expect the recovery in dividends to take longer than we had initially forecast," he adds.
However, Cadbury’s £133 million special dividend in February and Unilever’s decision to switch to quarterly dividends (which brought in £240 million) helped limit the overall damage for shareholders.
Overall, the FTSE 100 yielded 4%, dropping to 3.4% for the FTSE 250.
Capita Registrars has now downgraded its full-year forecast for dividends to £59.2 billion. This is a rise of just 1.3% from 2009, well below the forecasts for 5% growth back in January.
Taylor adds: "Even if dividends are being a little slow to recover, investors will be relieved that demands on their capital are finally returning to more normal levels. Company finances are in much better shape so dividends are no longer being recycled back into shoring up battered balance sheets."
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.