Investors reap record payouts

INVESTORS enjoyed a cash bonus in the third quarter as dividend payments from UK companies hit a record high of £23.2bn, according to research released today.

Payouts to shareholders are up 10.4 per cent on the same period last year, with more than four out of every five firms increasing their dividend.

But the celebrations may be short-lived, as the report by Capita suggests that the payouts are coming at the expense of long-term investment programmes.

“Firms are enjoying healthy free cash flows, and are not investing in new capacity without robust demand to justify the spending,” it says.

“Even in the event of difficulty maintaining profits, firms will be keen to maintain dividend payments where they can, as not to do so sends a very negative signal to investors.”

The research, which uses figures from Exchange Data International, shows the amount returned to shareholders reached £64.6bn in the first nine months of this year, leading the authors to predict that investors will receive a total of £78.6bn by the end of 2012.

Chris Gentle, partner at Deloitte, told City A.M. that the figures reflect the current tendency to placate shareholders at the expense of long-term investment: “Chief financial officers continue to be spooked by uncertainty in the marketplace, and that’s continuing to fuel the dividend payments.

“We’ve now had five years of uncertainty and it’s now a case of getting your head around the idea that this uncertainty is the new norm. Businesses that are going to win in the future are those that get the balance right between investment and paying the dividend.”

Dividend payments from FTSE 100 firms were responsible for the vast majority of the quarterly total – with Vodafone alone making a substantial £3.5bn cash payment to investors.

The report shows 226 listed firms paid a dividend in the third quarter, with only 36 reducing their payout. It predicts future growth will be at a slower rate, with £81bn of payouts expected in 2013.

Dividends from miners, oil producers and chemical industries grew while general retailers suffered, in part because Home Retail Group, owner of Argos, cancelled its dividend due to tough trading conditions.

Charles Cryer, chief executive of Capita Shareholder Services, said such high dividends were “unprecedented”.

“Given the lack of high yielding alternatives, investors can be hugely relieved that equities are providing a decent income. Dividends cannot grow rapidly forever against the slower global economic backdrop, so the rapid increases of the last year or so may now be slowing down.”