London's bluechip index the FTSE 100 (^FTSE) is forecast to deliver a 4.2% dividends payout to shareholders this year, totalling £85bn ($101bn).
That figure is up from £78.5bn paid last year, and falls just shy of the record payment £85.2bn set in 2018, data from online investment platform AJ Bell suggests.
It indicated dividend payouts could reach £86.7bn in 2023, thanks in part to a combination of share price falls and increases in dividend forecasts.
Anglo-Australian FTSE miner Rio Tinto (RIO.L) and Swiss rival Glencore (GLEN.L) and housebuilder Persimmon (PSN.L) are expected to be the highest yielding companies this year. All of them are expected to yield in excess of 10%.
Russ Mould, investment director at AJ Bell, said: "Those forecast yields sound attractive but investors should take note of the records of firms previously expected to generate such bumper payouts.
"Firms including Vodafone (VOD.L), Shell (SHEL.L), Evraz (EVR.L), Centrica (CNA.L), Royal Mail (RMG.L) and Marks & Spencer (MKS.L) were all due to pay a dividend over 10% as a FTSE 100 firm at one time or another. Instead, they cut the dividend, demonstrating nothing can be taken for granted, especially if a recession hits."
The number of companies that are anticipated to pay a dividend this year has also gone up.
Of the 100 firms, 97 are expected to pay a dividend this year, compared to 91 in 2021 and 85 in 2020, as corporate confidence continues to return after the pandemic
"Despite concerns over increases to input costs, interest rates (and therefore the cost of capital) going up, as well as increases in taxes for 2023, analysts are still nudging up their dividend payment forecasts," Mould added.
"This is in addition to share buybacks having already hit a new record this year, with £36.7bn of buybacks announced in the first three months of 2022. This exceeds the total for 2021 and indeed the 2018 all-time high buybacks figure for the index of £34.9bn."
Mould said concentration risk is "critical" when it comes to dividends. "Anyone who believes the UK stock market is attractive on a yield basis needs to have a good understanding of those 20 names in particular."
Just 10 stocks are forecast to pay dividends worth £47.7bn, equating to 56% of the forecast total for 2022, with the top 20 expected to generate 74% of the total index’s payout, at £62.5bn.
According to Mould, the list of "dividend heroes" has dwindled as COVID-19 and growth concerns weigh.
"Sadly, the ravages of the pandemic and the economic climate have led to a rout in the number of FTSE 100 firms able to boast a ten-year dividend growth track record," he said.
"Two years ago, 24 firms were on this list. That number has since dwindled to 17 even as National Grid, United Utilities, Dechra Pharmaceuticals (DPH.L) and Hikma Pharmaceuticals (HIK.L) joined this elite grouping in 2021."
He added: "This elite group have been tremendous long-term investments. The average capital gain from the seventeen ten-year dividend growers is 311% and the average total return is 436%. Both easily beat the FTSE 100, at 27% and 85% respectively.
But ‘quality’ does not guarantee safety if the valuation paid to access the cash flow and dividend streams is too high. Some of these names have suffered a bit of a reckoning in 2022, at least to date, as the twin tides of higher interest rates and lower risk appetite have pushed investors away from expensive, ‘quality’ names that have generally done well for the last decade toward cheaper, ‘value’ names that have generally performed poorly.
"Of the seventeen serial dividend growers, only one – BAT (BATS.L) – is in the top ten performers within the FTSE 100 this year to date."
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