UK companies giving more to shareholders, data shows

UK financial directors are loosening their grip on corporate cash piles and returning more to their shareholders, according to the latest Dividend Monitor report by share registration firm Capita Registrars.

UK dividends were forecast to gain 16.9% this year, while the FTSE 100 prospective equity yield for 2011 rose to 3.6% from 3.3%.

Capita increased its forecast for UK dividends by £1.8 billion to £66 billion, some £9.6 billion more than 2010, after adjusting for the distorting effect of BP restoring its dividend.

BP returned to the top five payers in the first half of 2011, with a payout of £1.8 billion, but strong performance in the mining sector was the main reason behind Capita increasing its forecast.

Miners increased payouts almost four fold in the second quarter of the year, with the biggest contribution coming from Antofagasta following a £540 million special dividend. Life insurance was another strong sector. Resolution paid out £137 million more than the second quarter last year and plans to return a total of 500 million to investors over the coming year.

Capita said while dividends offered investors a way to insulate themselves against the declining real value of income, they could come under pressure due to euro zone sovereign credit risks, which may precipitate a second wave of banking sector difficulties.

‘Equity yields are very attractive to investors wanting income and some protection from inflation. But there are still big risks,’ said Charles Cryer, chief executive officer at Capita Registrars.

‘Looming sovereign debt collapses in the euro zone may cause a renewed banking squeeze, leaving dividends back at the mercy of a need by companies to preserve cash for a return of tough times,’ he added.

There were 247 companies that paid a dividend in the second quarter, compared with 221 in the same period last year. Of these, 210 increased or reinstated or started paying dividends, while only 32 cut or cancelled them.

Overall UK dividends rocketed to £19.1 billion in the second quarter, up 27% on the previous year, with cyclically sensitive sectors growing dividends 35% in the second quarter compared with solid 13% growth from defensive companies.