Dividends from UK shares are roaring back following the washout of 2020. At least that’s according to a report published by Link Group at the start of the week.
During the third quarter, total dividends jumped 89.2% year-on-year to £34.9bn. This was thanks in part to a bumper period of special payouts being shelled out, £7.2bn worth to be exact.
The rate of growth was impressive even without taking into account those large supplementary rewards. Underlying dividends jumped to £27.7bn in quarter three, up 52.6% year-on-year.
Where did the growth come from?
Link Group says that “mining, oil and banking dividends made the biggest contribution to growth” in the quarter.
The miners were particularly influential in quarter three’s dividend bounce. Payouts here quadrupled year-on-year to £12.8bn, Link Group says. Astonishingly, it predicts that “miners will be responsible for nearly £1 in every £4 distributed by UK-listed companies.”
Leaping oil prices are also helping dividends from energy companies rebound better than expected. The return of banking dividends after they were banned in 2020 also fuelled quarter three’s big year-on-year increase.
Dividends to rise in 2021 and 2022?
Link Group has upped its dividend growth forecasts for the full year. It now expects headline growth of 44.8% in 2021, to £93.2bn, as more special dividends come down the pipe in Q4. Excluding special dividends, the total is predicted at £77.4bn, up 22.4% from 2020 levels.
The organisation expects dividends to continue rising in 2022 too, with strength in the banking sector returning and other sectors recovering further following last year’s Covid-19 outbreak. However, Link Group warns that payouts from mining companies are likely to fall from 2021 levels.
It says that “commodity prices have come down sharply recently which makes it likely their dividends will be lower next year.”
7% dividend yield
It’s clear to me that share investors need to be wary that dividend growth could fall sharply in the coming quarters. The economic recovery is running out of steam amid soaring inflation and a worsening public health emergency in some regions. This could have severe ramifications on company balance sheets and corporate confidence.
That said, I don’t plan to stop shopping for dividends anytime soon. There are still plenty of UK stocks I’m confident will pay BIG dividends even if the economic rebound stutters. I think 7%-yielding Vodafone Group’s defensive operations and excellent cash generation will ensure it remains a brilliant income stock in the near term and beyond, for example. That’s even though the telecoms titan faces extreme competition in its developing and emerging markets.
Admiral Group is another FTSE 100 dividend stock on my radar today. Like Vodafone, demand for the insurer’s services remains stable in good times and bad, giving it the financial clout and the confidence to pay generous dividends.
The yield here sits at 5.8% for 2022, down from this year’s special-dividend-bloated figure above 9%. But this still smashes the broader 3.5% forward average for UK stocks. I’d buy Admiral despite the threat of huge, forecast-beating claims costs.