Treasury cheer as dividends rise for first time in a year

Dividends are growing for the first time in more than a year, Capita Registrars will reveal today. The 1.6 per cent rise in the third quarter of 2010 follows five consecutive quarters of decline, the firm's dividend monitor has found.

The strong showing prompted it to upgrade its forecast for the total payout for the year by £1bn, though the £55.7bn now expected is still 5 per cent lower than the 2009 payout and 17 per cent lower than its the 2008 peak. But Capita will say that had BP not been forced to cancel its payment as a result of the Gulf of Mexico oil spill, dividends would have actually risen by 4 per cent this year, making the total payment flat in real terms.

Excluding the BP effect, dividend payments in the third quarter of this year grew by 13 per cent, the fastest pace since the first quarter of 2008. This suggests the corporate sector is in better health than some experts have feared. The Coalition desperately needs this to be translated into jobs growth as it prepares to lose 500,000 public-sector workers following last week's bruising package of public spending cuts.

In the third quarter of the year, UK listed companies paid out £17.6bn, up from £17.3bn in 2009. In the year to date, dividends have totalled £46.1bn, compared with £47.8bn for the first nine months of 2009.

The monitor will also say the underlying picture is more positive. About 200 companies paid a dividend in the third quarter, about the same as last year. However, the number was reduced as some firms who brought forward their third-quarter payouts to get them into the 2009-10 tax year and beat the new 50 per cent top rate of tax.

Despite this, the number of companies increasing, starting, or reinstating payments to shareholders still outnumbered those who cut or cancelled their dividends by 3.1 to 1. Mid-cap companies appear to be doing much better than their larger counterparts, with the FTSE 250 increasing its distributions to investors by 33 per cent in quarter three, compared to the same period last year, distributing £1.4bn. By contrast, the FTSE 100, actually cut them by 1.7 per cent to £15.7bn.

Those figures are not adjusted for BP and other one offs, however, including the £280m special dividend from Heritage Oil which accounted for a fifth of the FTSE 250's total.

Charles Cryer, the chief executive of Capita Registrars, said: "Seeing corporate UK in better health will give the Treasury some cheer that the economy can withstand the cuts."