Dividends from UK listed companies rose 10.7% to a new record of £110.5 billion in 2019, according to the latest Dividend Monitor from Link Group.

This is more than double the level UK dividends reached a decade ago.

In other words, for every £20 invested in the UK stock market at the beginning of 2019, investors earned an average of £1.02 in income from their company shares. 

The dramatic increase included “special” dividends in 2019 totalling £12 billion.

Excluding special dividends, underlying growth was 2.8% to £98.5 billion.

For 2020, Link forecasts headline dividends will fall 7.1% to £102.7 billion and underlying payouts excluding specials to fall 0.7% to £97.9 billion.

“Two fifths of UK dividends are declared in US dollars, so the changing exchange rate makes a significant impact on the sterling value paid,” said Link.

“The pound was significantly weaker in 2019 compared to 2018, and this inflated the value of dividends in sterling terms by £2.4bn in the first three quarters of the year.

“This was enough to boost the headline total by over two percentage points and accounted for almost three quarters of the underlying (i.e. excluding special) dividend growth in 2019.

“In fact, if exchange-rate effects are excluded, underlying growth was just 0.8% on a constant-currency basis, and dividends actually fell in the second half of the year.

“Special dividends are by their very nature unpredictable.

“They tripled year-on-year to £12.0bn, the second-highest level on record as companies across a wide range of sectors sought to return excess cash to shareholders.

“Mining, banks and IT accounted for three quarters of the total paid, but housebuilders, hotel and leisure companies, and industrials also made a significant contribution. 

“Over the course of the full year, the top 100 companies performed more strongly on an underlying basis than their mid-cap counterparts, many of which suffered from the relative weakness of the UK economy.

“But the top 100 growth rate was flattered by exchange-rate effects (the FX effect on mid-caps is negligible).

“Neither group did well once special dividends and exchange rates were factored in.

“The biggest paying sector, oil, gas & energy showed no growth in 2019 as companies use higher oil prices to rebuild dividend cover.

“Mining dividends, boosted by huge specials from Rio Tinto and BHP, made the largest contribution to growth, up by two fifths.

“The miners have provided the main engine of UK dividend growth in the last four years, increasing their payouts six-fold since the commodity slump of 2015-2016.

“The banking sector also made a significant contribution to growth in 2019.

“Banking dividends rose by a third to £15.6bn, making 2019 the first year to see larger payouts than 2007, indicating just how long it has taken for the sector to recover from the financial crisis.

“The weakest performance came from the telecoms sector which is suffering from heavy investment needs and weak pricing.

“The total paid fell by over a quarter year-on-year, following a steep cut from Vodafone, though most companies in the sector either reduced their dividends or only managed to hold them steady.

“For the year ahead, UK dividends face significant headwinds.

“Link does not expect such large special payouts, and if the pound maintains the higher levels at which it ended the year, it will reduce the translated value of payouts in 2020.”

Michael Kempe, COO of Link Market Services, said: “The spice of huge special dividends and the zest of big exchange-rate gains enlivened what was in truth a rather bland year for UK dividends.

“2020 is not set for the same superficial excitement.

“The UK and global economies are set for a slightly better 2020 than 2019, and the squeeze on profits for UK mid-caps is likely to moderate, which should herald a modest turnaround in dividends from this group of companies. 

“The outlook for the top 100 is much more important, however.

“Oil prices have jumped recently on rising tensions in the Middle East but this is unlikely to lead to increases in dividends from the sector. 

“With payouts from the UK’s other biggest payers also unlikely to move very much and the big mining groups no longer providing the engine of dividend growth that drove UK dividends over the last three years, we do not expect significant increases from the top 100 either. 

“More importantly, UK dividends face the significant headwinds of a stronger pound, and the likely decline of special payouts to more normal levels.”