UK dividends tipped to hit fresh peaks in 2019 following record Q1 payouts

Dividends hit new records in the first quarter. What might they do in the remainder of the year?

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There have been few better times to get rich from income stocks, as Link Asset Services’s latest UK Dividend Monitor shows. According to the report, total dividends paid by London-quoted companies rose a whopping 15.7% to £19.7bn in the three months ended March, the highest amount for any first quarter in history. So what exactly has been happening and does it bode well for the rest of the year?

The surge was underpinned by some substantial one-off special dividends, the financial services provider said, the largest impact of which came from BHP Group and its decision to fork out a £1.7bn supplementary payment from the proceeds of shale asset disposals in the US.

Commenting on the spectacular first-quarter numbers, Michael Kempe, chief operating officer at Link Market Services, said: “The first quarter is usually just the warm-up act for dividends, but this year it has put in a stellar performance. Miners are taking centre stage with large special dividends, but these reflect restructuring and asset sales rather than trading profits. Underlying growth from this sector is now much more normal after grabbing the headlines over the past couple of years.”

The flyers and fallers

Indeed, excluding special dividends, payout growth was actually less than expected, Link noted, with rewards rising ‘just’ 5.5% year-on-year.

It said that dividend growth from the oil and pharmaceuticals sectors — the UK’s two largest-paying segments in Q1, accounting for almost 40% of total dividends in the period — was delivered almost entirely on the back of favourable exchange rate movements as only BP raised payouts.

In better news though, tobacco stocks “raised their payouts substantially,” Link  said, but rewards from the telecoms sector were more disappointing as “BT cut its payout and Vodafone’s [dividend] was flat in euro terms.” Furthermore, dividends from the retail sector were also described as “disappointing” as Dixons Carphone and Debenhams slashed shareholder payments and the majority of other companies held dividends flat.

Another record year for dividends in 2019?

So what can investors expect dividends to do for the rest of 2019? Well, because of slower growth in company earnings, as well as the weaker-than-expected underlying dividend rises in Q1, Link has hacked back its January forecast that underlying dividends will rise 5.3% this year.

The good news, though, is that the financial giant still anticipates “good growth” for the year as a whole and is tipping dividends excluding supplementary payouts to reach all-time peaks of £99.7bn this year, up 3.9% year-on-year. What’s more, taking into account special dividends, the amount is expected to barge through the £100bn marker for the first time in 2019 to £106.1bn, up 6.3% from 2018 levels.

As I type, the forward yield for UK stocks stands at a colossal 4.6%, even in spite of rising stock prices since the start of the year. As Link correctly declared: “This is exceptionally attractive by historic standards, and far exceeds the yield available on other asset classes like government bonds, property and cash.” If you’re hunting for dividend stocks there have been few better opportunities to make some scintillating returns than right now, so my advice is to break out the chequebook and go share shopping!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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