Dividends from companies on the London Stock Exchange have risen strongly in recent months as the economic recovery has continued. And as a consequence, total payouts from UK dividend stocks could beat previous forecasts, according to Link Group.
Research from the financial data business has shown that first-quarter dividends from UK shares slipped 24.9% on a headline basis, to £14.2bn.
However, this figure reflected lower special dividends in the period and the delisting of BHP Group from the FTSE 100. Stripping out these effects, Link Group says that UK dividends actually rose 12.2% year on year to £13.3bn.
Oil stocks drive higher UK dividends
According to Link Group, all stock market sectors grew dividends on an underlying basis in quarter one.
And Link Group noted that the large annual increase was mainly driven by oil stocks. Underlying dividends here leapt 29% year on year, “where the astonishing rebound in oil prices has delivered a dramatic turnaround in fortunes”, it said.
The data firm also noted that AstraZeneca’s first dividend hike for 10 years, the return of BT Group’s dividend after a two-year break, and a rebounding UK property sector all helped push the underlying rate higher in quarter one.
2022 forecasts upgraded!
While Link Group said that “UK dividends had a strong start to 2022”, it added that “the headline figures don’t reflect the strength of the ongoing recovery from the pandemic”.
Link Group said that the outlook for UK dividends has improved since the beginning of the year. And that as a consequence it has hiked its dividend growth predictions for 2022.
Adjusted for BHP Group’s departure from the London Exchange, total underlying dividends of £85.8bn are expected this year, up 15.2% from 2021 levels and better than Link Group’s prior estimate of £81bn.
Headline dividends (including special payouts) meanwhile, are tipped to slip 0.8% year on year to £92.2bn. This is up from the £87.5bn predicted in January, however.
Most sectors to grow dividends in 2022?
In particular, Link Group believes that dividends from oil and mining stocks could rise thanks to soaring commodity prices.
For oil dividends, it notes that “there is a lot of headroom for growth now that the oil majors are enjoying a big increase in their cash flow”. Meanwhile it says that mining dividends will be “very large” in the second quarter.
Link Group says too that dividends from British banks will continue recovering at a faster pace than previously expected.
The organisation added that “most sectors will show [dividend] growth in 2022”.
3.7% dividend yields
The forward yield for UK shares sits at 3.7%, according to Link Group. And the yield for the FTSE 100 sits a fraction higher (at 3.8%).
Link Group warned of risks to its 2022 dividend forecasts, however. It said that “the constraint on consumer demand caused by energy price hikes here and around the world” could endanger UK dividends. It added that “cost pressures… will weigh on margins” for a number of sectors.
3 top UK dividend stocks to buy today
As Link Group says, there are significant dangers to corporate profits (and thus dividends) this year and potentially beyond. The stock market sell-off of earlier this week illustrates the threat posed by runaway inflation (as well as central bank interest rate hikes and a resurgent Covid-19 crisis in China).
However, I think the following three UK dividend stocks are in great shape to pay big dividends in 2022 and probably beyond, too. These are:
#1: Persimmon
Persimmon’s 10.9% forward dividend yield makes it the biggest-yielding housebuilding share on the FTSE 100. I think it’s a great buy for my portfolio today as the UK homes market goes from strength to strength.
Rising building material and labour costs pose a problem for construction companies like this. But I’m convinced that the pressure this is exerting on margins should continue to be outstripped by the rate at which property prices are growing.
Rightmove said this week that the average British home price hit a new record of £360,101 in April. Prices on a three-month basis have leapt £19,000, too, the highest quarterly increase ever. I’m confident that house prices will continue to soar as well as demand for residential properties should keep outpacing supply.
#2: TBC Bank Group
TBC Bank Group has plenty of investment potential as its target markets in Western and Central Asia grow rapidly. The business is one of Georgia’s biggest banks and recent expansion has seen it move into Uzbekistan too.
I’m concerned by how sanctions placed on Russia could impact Georgia’s economy — and by extension profits at local banks — in the short-to-medium term. Both countries have close economic links owing to their geographic proximity. Still, it’s my opinion that this risk is baked into TBC’s rock-bottom valuation. Today it trades on a forward price-to-earnings (P/E) ratio of below four times!
This low reading, along with its 8.7% dividend yield for 2022, makes it a top value buy in my opinion.
#3: ContourGlobal
ContourGlobal builds and operates power stations across the globe. It is therefore well placed to profit from growing energy demand from an increasing worldwide population. Statista analysts believe total electricity consumption will rise 47% between 2020 and 2040 (to 35.3 petawatt hours).
I like ContourGlobal because it has significant exposure to emerging markets where power demand is rising particularly strongly. I’m also a fan because of its increasing focus on renewable energy projects, a fast-growing sector as the switch from fossil fuels intensifies. I think these qualities offset the constant threat to profits if project execution problems occur.
Today this UK dividend stock carries an 8% dividend yield for 2022.
