‘Special dividends’ boost investor income

In Q3 2021, UK dividends reached £34.9bn, an impressive 89% year-on-year rise¹. Part of this rise can be attributed to large one-off special dividends, a trend expected to continue in Q4. Excluding special dividends, the underlying total in Q3 was £27.7bn, a 52.6% increase. In context, this year-on-year rebound, is comparable with a pandemic-stricken Q3 2020, in which dividends halved.

Managing Director of Corporate Markets at Link, Ian Stokes commented on the findings, “The good news is that we have consistently seen companies deliver more in dividends than we thought likely at the beginning of the year… Companies were progressively less impacted by each lockdown and many of them took action to bolster their balance sheets during 2020… Dividend firepower is now much stronger as a result.”

Referring to the dominance of special dividends, he added, “The boom in special dividends reflects how some companies are making catch-up payments, some are capitalising on very strong demand, and others are seizing the moment to sell assets at a time of high prices and numerous cash-rich potential buyers.”

Although good news for income investors, dividend growth may be driven by sectors which might not perform as well in the future, which highlights the importance of diversifying across different sectors.

¹Link Group, 2021