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FTSE 100 dividend payouts set to grow by 25% this year

Joanna Faith
Written By:
Joanna Faith

FTSE 100 firms are expected to pay out dividends worth a total of almost £76.9bn this year, the first year of dividend growth since 2018.

That equates to a 25 per cent or £15.2bn rebound as companies start to recover from the pandemic, according to analysis from AJ Bell.

Analysts forecast a more modest £2.9bn or 4 per cent increase in 2022.

2020 was a difficult year for investors looking for income from their investments, as businesses pulled back on their dividend payments ‒ at least initially ‒ as the impact of the pandemic began to be felt.

A study by Link Group suggested that UK dividends were slashed by as much as 40 per cent over the year due to Covid-19, to levels last seen in 2011, wiping out eight years of growth.

However, the trend appears to be reversing. Miner and banks are expected to deliver the biggest dividend increases this year. Rio Tinto is expected to be the index’s single biggest dividend payer in 2021 and nine firms are forecast to offer a yield of more than 7 per cent, with Rio Tinto topping the table with a forecast dividend yield of 12 per cent.

Russ Mould, investment director at AJ Bell, said: “Investors must assess concentration risk when it comes to dividends as well as earnings, an issue which has dogged those who have sought income from the UK stock market for some years.

“Just ten stocks are forecast to pay dividends worth £40.2bn, or 52 per cent of the forecast total for 2021. The top 20 are expected to generate 71 per cent of the total index’s pay-out, at £54.4bn.”

He added: “History suggests that it is not the highest-yielding stocks which prove to be the best long-term investments anyway (although the past is by no means a guide to the future).

“Often defending a high yield can be a burden for a firm, as it sucks cash away from vital investment in the underlying business, or can be a sign that the company is in trouble and investors are demanding such a high yield to compensate themselves for the (perceived) risks associated with owning the equity.

“The strongest long-term performance often comes from those firms that have the best long-term dividend growth record, as they provide the dream combination of higher dividends and a higher share price – the increased distribution will over time drag the share price higher through sheer force.”

Miners and banks dominate the top 10 dividend increases this year