Rio Tinto and BHP lead the dividend recovery with more to come

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A jump in payouts from the mining giants underpinned a big bounce back in dividends from London-listed companies in the latest three months, according to research from Link Group.


Further recovery is expected with the miners set to announce more hefty rises in the forthcoming results season with earnings buoyed by surging iron and copper prices.


Rio Tinto PLC (LSE:RIO) is being tipped by Deutsche Bank (NYSE:DB) to pay out an interim dividend of 603c (407c ordinary, 196c special) while Berenberg reckons BHP might up its annual payment by 150% to 305c for a yield of almost 10%.


Yields at those levels suggest investors think they are unsustainable especially as the miners have now linked their payouts to earnings so if metal prices dip, so will earnings and dividends.


Even so, it is giving the dividends distributed from UK companies a healthy boost and during the three months to end June overall payments rose to GBP25.7bn or by 51% compared to a year earlier, with a 44% rise excluding special dividends.


Mining and banking made up over two-thirds of the increase and with the banks just released from a Covid-19 ban, Link Group has upgraded its 2021 headline forecast by GBP2.5bn to a total of GBP79.5bn or, up 24.4% year-on-year for the UK market.


Underlying dividends excluding specials are expected to rise by 13.4% year on year.


Link says a mix of dividend restorations, catch-up one-offs and timing changes, alongside regular annual increases for companies that have traded well through the crisis all worked in the second quarter’s favour.


Almost 90% of the increase this time came from companies that had cancelled dividends in Q2 2020.


Ian Stokes, managing director, corporate markets UK and Europe, Link Group said:” As normal life returns to Britain’s streets, so it is returning to business too.


“All the indicators of economic growth look very encouraging, and companies have come out of the crisis in most cases with their balance sheets looking strong.


“Resurgent profits and healthy bank balances mean more dividends for shareholders. These wider trends also help explain why the regulator has lifted the embargo on dividends from capital-rich banks.


“Before the pandemic, dividends reached GBP100.3bn, even before one-off special payouts were added, so the recovery has a way to run.”

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