UK company dividends cut by £10bn as downturn bites

Amost half of the stock market's return comes from five companies, study shows

British companies slashed dividends by £10bn in 2009 in what was annus horribilis for income seekers, research by Capita Registrars will reveal today.

British listed companies paid out £56.9bn in dividends last year, a 15 per cent decline on the previous year, the research found. It also showed how reliant investors seeking income from the stock market are on just five companies. Almost half (47 per cent) of all dividends were paid by BP, Shell, HSBC, Vodafone and GlaxoSmithKline. In 2007, these companies accounted for just more than a third of the total (35 per cent). Their four sectors (drugs, telecoms, oil and banking) also now contribute 56p in every pound paid out in UK dividends. Exactly a quarter of all dividends were paid by BP and Shell.

Notwithstanding HSBC, which hardly cut its payment, the banking sector performed poorly. UK banks combined cut dividends by half, paying out £6.1bn less to shareholders in 2009 than in 2008. However, fortunes diverged widely with the partially state-owned banks such as Royal Bank of Scotland and Lloyds Banking Group paying nothing, while Standard Chartered actually returned more cash to shareholders.

The high-street sector also performed poorly with payouts tumbling by 62 per cent. Payments from household-goods stocks fell by almost two-thirds. However, these sharp declines were partially offset by oil companies and businesses traditionally considered as "defensive" because of the reliable flow of profits. Oil companies actually paid out £3bn more than in 2008, an increase of 26 per cent. Drug companies paid a fifth more, while tobacco producers, electricity suppliers, and food retailers all increased their payments by at least a tenth.

In total, 202 companies cut their dividends, and more than a third of these (74) paid nothing, some because they went into liquidation. A total of 179 companies increased their payouts and 60 held them steady. By comparison, some £73bn in new equity was raised – £16bn more than the stock market's combined payout, according to the analysis of thousands of dividends paid by quoted companies from data provided by Exchange Data International, the financial information specialists.

Paul Taylor, head of dividends at Capita Registrars said: "The recession has hit dividends particularly hard because companies have not only had to cope with falling profits, but also massive pressure on their ability to finance themselves. Preserving cash has been a top priority, easily trumping shareholders' need for income."

Capita predicts dividends this year will total £59.6bn, a modest 5 per cent increase, despite an expected economic recovery. The yield on UK equities for 2010 will therefore be 3.4 per cent, lower than the 3.5 per cent in 2007, when both dividends and share prices were considerably higher.