Shareholders will receive £10bn less from their investments in UK-listed companies this year than they did in 2007 as businesses slash dividends in an attempt to see out the recession. Companies have also raised record amounts of new equity over the past few months in attempt to bolster their shattered balance sheets.
Capita Registrars, an arm of the outsourcing group Capita (CPI.L), predicted yesterday that dividends would fall to £52bn this year, down from £62bn in 2007. The group said the 15 per cent decrease would be a "far bigger decline than the overall economy".
Paul Taylor, the head of corporate advisory at Capita Registrars, added: "The recession has hit companies hard. As profits fall and companies seek to preserve liquidity in the face of severe limits on their ability to borrow, dividends have taken the strain.
"This creates uncertainty and potential cashflow problems for those who rely on regular income from shares, such as insurance companies and some private investors. Unfortunately, it appears there is little chance of any improvement until next year."
Companies listed on the London Stock Exchange paid out £28.3bn in the first six months of the year, almost a tenth less than the corresponding period in 2008. Capita Registrars said 70 fewer companies paid a dividend in the first half—compared with the previous year—"some because they had been taken over or gone out of business". The only reason dividends will not plunge further is the performance from oil giants BP (BP) and Royal Dutch Shell (RDSA). The rise in the oil price has allowed Big Oil to up its dividends, offsetting the 29 per cent cuts by the banks. Dividend payouts in the sector have shrunk from £9bn in the first half of 2007 to just £4bn.
"The banking sector particularly has distorted the picture, with very high dividends on boom-inflated profits collapsing to the current lows. A more stable picture is now emerging in some banks' results," Mr Taylor said.
Retailers, not including the supermarket chains, paid out 90 per cent less than a year ago as did household goods companies as the slump in consumer spending smashed the bottom line. Real estate companies were also hit hard as the housing market and commercial property values crashed, forcing them to halve their dividends.
Companies in the traditional defensive sectors increased the payouts. Tobacco, supermarket and pharmaceutical companies have all upped their dividends. Energy groups alone gave back £2.4bn more to shareholders than last year.
This is the first time Capita has put together a Dividend Monitor report, using figures from Exchange Data International. The group said equity-raising in the first half was almost double the dividend payouts at £51bn, up from £9bn in the whole of 2007. While the banks saw the largest fall in dividends, they also needed the largest increase in capital needs, raising £50bn in the past 12 months. Rio Tinto's decision to issue £10bn was the biggest single contributor as the company needed new equity to reduce its borrowings.
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