Dividends improvement for UK investors in 2010 with oil and gas expected to be biggest payers, dividend monitor says

Written by Ray Clancy

Monday, 08 February 2010 09:27

British investors are set to see a modest improvement in dividends in 2010 after hefty cuts last year, as companies have less need to hoard cash with earnings beginning to recover, according to a report from Capita Registrars.
But there will be no big recovery with the Dividend Monitor describing the improvement in coming months as ‘tepid’. Capita Registrars, which provides share registration and is a unit of Capita Group, estimates that British companies will pay £59.6 billion to shareholders this year, some 5% higher than in 2009.

British corporates cut dividends by £10 billion, or 15%, to £56.9 billion last year, according to the report, with banks, the hardest hit by the financial crisis, slashing payouts by £6.1 billion.

‘The growth in 2010 will be tepid at best. The banking sector is likely to make a contribution to the improvement but it will not return to dominate the dividend scene for a long time yet,’ the report says.

British companies also raised £73 billion in new equity, far more than the dividend payouts.
‘It is no wonder dividend payments have collapsed so dramatically. It would make little sense to pay out dividends, on which most investors must pay tax, only to demand the same money back as part of a rights issue,’ said Paul Taylor, head of dividends at Capita Registrars.

The report said oil and gas producers, mainly BP and Royal Dutch Shell, would remain the dominant dividend payers, paying out an estimated £15 billion in 2010. The sector contributed more than a quarter of the dividend paid to investors last year, but growth may slow because of the outlook on crude prices, Capita Registrars said.

Last week, Royal Dutch Shell posted a 75% fall in fourth quarter profit to $1.18 billion, while BP reported a lower than forecast 33% rise in fourth quarter replacement cost profit.

Nearly half of all dividends in 2009 were paid by BP, Royal Dutch Shell, HSBC, Vodafone and GlaxoSmithKline, the report also showed. About 200 companies cut their dividend last year and more than a third of them paid no dividend, while 179 raised their payouts and 60 held them steady.

Capita Registrars said cyclical companies, which fare worse in a recession, cut their dividends by 25%, while defensives, which are better to withstand economic conditions, raised their payouts by 5%.

Nevertheless, shares in cyclical firms including miners, carmakers and financials were the darling of investors last year, rebounding sharply after being hammered in 2008 as the deterioration in the global economy stabilised. Shares in defensives, such as drug makers, telecoms and utilities, underperformed in 2009.