Investors doomed to declining dividends

The bad news keeps coming for shareholders: their investments may not be paying dividends this year.

Last Updated: 06 Nov 2012

It's been a grim couple of years for public company shareholders, given the huge declines in equity markets around the globe. To make matters worse, it seems that companies listed on the London Stock Exchange could pay out £10bn less in dividends this year than they did two years ago. According to Capita Registrars’ Dividend Monitor, the amount paid to investors this year is expected to hit £52bn, which is arguably better than a kick in the teeth, but still represents a 13% decline on dividends paid out last year. The equity markets may have rallied in recent weeks, but the pain isn’t over yet for shareholders...

In the first six months of 2009, LSE-listed firms paid out £28.3bn – a drop of around 10% on 2008’s figures. The beleaguered financial services sector saw dividend payments dive almost 30% in the first half of this year, compared with the first six months of 2008. This is not particularly surprising: firms across the board have been eager to preserve cash at a time when their order books have been shrinking.

And at least some banking shareholders can expect to see a cash return of sorts on their investments. Others may not be so fortunate – 70 companies decided to drop a dividend altogether, most of whom operate in the retail, support services and banking services. The retail sector has been hit particularly hard, as recession-hit consumers stopped spending every hard-earned penny and started displaying a previously-unseen propensity to save instead. For instance, dividends in companies selling household goods were down an eye-watering 93%.

Real estate didn’t fare too well, either, as you’d expect, with dividend payments down by almost half. Indeed, the overall total would have been much lower had it not been for big pay-outs from oil giants like BP and Shell: rising oil prices in the last few months have enabled the big players in the sector to hike their dividends by an impressive 74% for the first six months of the year. Elsewhere, healthcare dividends rose 56%, while pharmaceuticals jumped 26% and tobacco 15%.

All of these, you’ll notice, are fairly recession-proof industries: we’ll still be filling up with petrol, taking medicine and (in some cases) inhaling chemically-addictive substances even when times are tough. But public company investors may be hoping that oil prices don’t fall back to early-2009 lows again any time soon, or the dividend picture might look even bleaker in six months' time.

In today's bulletin:

France and Germany growing again - as UK trails behind
Soaring pension deficit threatens to cripple FTSE firms
Saving the high street - on a £50k budget
Nietzschean SMEs say they will be better for the recession
Investors doomed to declining dividends

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