Dividends in 2010 will be 19% below the peak of two years ago.
Income investors -- who focus on dividend payouts rather than capital gains -- are going to be disappointed with the latest Capita Registrars Dividend Monitor.
Dividends to fall 6.5% in 2010
Capita's latest survey, which covers dividends paid in the second quarter of 2010, is much gloomier than its first-quarter survey. Back in April, Capita predicted that total dividends for 2010 would rise a modest 1.3% on 2009, to £59.2 billion.
In today's report, Capita revealed that dividends paid in the first six months of the year came to £28.6 billion, down 5.4% from the £30.3 billion paid in the first half of 2009. Capita goes on to estimate that total UK dividends will slide 6.5% in 2010 to £54.7 billion.
At their pinnacle in 2008, total UK dividends came to £67.5 billion. In other words, dividends in 2010 will be almost a fifth (19%) below their peak.
However, the underlying trend is positive: 39 more companies paid a dividend in the first half of 2010 compared to the same period last year. Also, the number of companies increasing or reinstating dividends rose to 189 -- twice the number of cuts and cancellations.
BP is the Big Problem
Alas, the environmental disaster caused by the Gulf oil spill since 20 April forced BP (LSE: BP) to suspend its dividends for the rest of 2010. Of course, the loss of such a heavyweight dividend-payer led Capita to slash its previous forecast for 2010 dividends.
The abrupt reversal in an improving underlying trend for dividends is entirely due to the loss of £5.4 billion of BP dividends over nine months. This sum is more than the £5.3 billion of dividends expected from FTSE 250 firms over the entire year. Indeed, in the past year, BP alone accounted for an eighth (13%) of UK dividends.
Adding back BP's lost £5.4 billion, total dividends would be £59.1 billion -- £700 million ahead of the £58.4 billion paid in 2009. This goes to show how much investors rely on the dividends paid by mega-cap firms, and how one company's problems can lead to billions being slashed from cash distributions.
FTSE 250 outshines FTSE 100
The vast majority of UK dividends are paid by a small clutch of companies. This concentration means that the top 15 dividend-payers accounted for two-thirds of all payouts in the first half of 2010.
That said, the FTSE 250 mid-cap index is doing much better than the blue-chip FTSE 100 index. FTSE 250 members paid out £2.4 billion in the first half of 2010, up almost a quarter (24%) on the same period of 2009. In contrast, blue-chip dividends fell 8.3% to £25.2 billion (excluding BP, dividend growth was flat). Only £1 billion of dividends were paid by main-market companies outside of the FTSE 350.
In the year to 30 June 2010, the FTSE 100's yield came to 4.1%. After adjusting for the loss of BP dividends, the implied yield for 2010 is 3.6%. On the other hand, the FTSE 250 yielded 3.8% over the past 12 months, but will yield 4.3% in 2010. So, high-yield fans should not ignore mid-caps when seeking chunky dividends.
Nice big earners
Although dividends will be down this year, yields still compare favourably with government bonds and cash. Indeed, income seekers with an appetite for risk should consider buying into global companies with good track records of increasing their dividends.
For example, pharmaceutical giant GlaxoSmithKline (LSE: GSK) raised its latest quarterly dividend to 15p from 14p when it announced results yesterday. Likewise, telecoms Goliath Vodafone (LSE: VOD) has a forward dividend yield of over 6% and reported improved growth today.
When compared to the Bank of England's base rate of 0.5%, these yields look mighty attractive to me!
More from Cliff D'Arcy:
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> Cliff owns shares in GSK.
