Lloyds pushes UK dividends to record high

Headline dividends were up 13.2% to £29.2 billion between March and June this year compared to the same period in 2014, according to Capita Asset Services. The firm says this is the highest second-quarter payout on record.

Furthermore, underlying dividends - which strip out special or one-off dividend payments - totalled £28.3 billion in the second quarter, which Capita says is the highest for any quarter on record and an increase of 12.7% on the same period last year.

The biggest contribution to the growth in dividends was made by the financial sector, where headline dividends increased by more than 33% and contributed more than one third of the quarter's total.

Lloyds Bank's £595 million payout - its first since the fourth quarter of 2008 - was a key driver, while international giant HSBC saw its total dividend increase by 21% to £2.9 billion, bolstered by favourable exchange rates.

In the bank

Barclays' final payment of £642 million slipped back from the first quarter to the second; however, adjusting for this, Capita says financials still saw growth of nearly 25%.

Commenting on the results, Justin Cooper, chief executive of shareholder solutions at Capita, says: "To say income investors had a bumper three months is an understatement, with payouts at a record high for a second consecutive quarter. Better yet, the lion's share of growth is coming through regular dividends, rather than one-off specials.

"A key component is the resurgence of the banking sector, as Lloyds re-joined the ranks of dividend payers. While the total was well below Lloyds' former dividend might, it is an excellent sign that normality is returning to the battered financials."

Capita says that consumer goods industries also posted a strong quarter, with headline dividends up 11.7% thanks in part to Imperial Tobacco's switch to quarterly payouts. Housebuilders and beverage companies also benefited from an increase in consumer spending.

By contrast, utilities companies saw their dividend payments fall, as Centrica's dividend cut cost investors £214 million. Capita says that mining dividends also fell slightly, due to a reduction in Antofagasta's payout.

Mid caps ahead

Medium-sized companies continued to pay more than large FTSE 100 companies, with headline dividends climbing 26.1% to £3.8 billion. Capita claims that this is the fastest rate of growth in any quarter since 2010, and the fifth consecutive quarter that medium-sized companies have reported accelerating dividend growth.

Headline dividends from FTSE 100 firms rose 11.1% to £24.8 billion in the second quarter, compared to the same period in 2014.

Capita has raised its forecast for full-year headline dividends by £600 million to £87.2 billion, with underlying dividends rising to £84.8 billion. This represents a 7.3% year on year rise; it is the fastest increase since 2012, and a new record for the underlying total.

Overall, the firm says that UK equities will yield an average 4% over the next year, with the prospective 12-month yield on FTSE 100 firms standing at 4.1%, and on medium-sized companies at 2.9%.