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| UK firms 'cut dividends by £10bn' | UK firms 'cut dividends by £10bn' |
| (20 minutes later) | |
| Shareholders in UK companies saw their dividend payments cut by £10bn last year, according to a report. | Shareholders in UK companies saw their dividend payments cut by £10bn last year, according to a report. |
| UK companies paid out £56.9bn to investors in 2009, 15% less than in 2008, said Capita Registrars. | UK companies paid out £56.9bn to investors in 2009, 15% less than in 2008, said Capita Registrars. |
| Investors in the banking sector were the worst hit, said the report, after the industry cut payouts by £6bn from 2008 levels. | Investors in the banking sector were the worst hit, said the report, after the industry cut payouts by £6bn from 2008 levels. |
| It predicted dividends would grow this year but only by 5%, because of a sluggish economic recovery. | It predicted dividends would grow this year but only by 5%, because of a sluggish economic recovery. |
| Dividends underpin the valuation of shares by stock market investors and are crucial to the financial well-being of millions of people through the investments held by their pension funds. | |
| Pension schemes typically invest in a wide range of assets, some of which are bought primarily in anticipation of their value going up - "capital growth" in the stock market's jargon. | |
| But dividends are vital to generate the cash flow necessary to pay pensions in payment and in the future. | |
| Any long term downturn in the flow of dividends would increase the deficits currently being recorded by pension schemes, as they would be required to put away an even greater stock of assets now to generate the cash need in the future. | |
| Banks | |
| The Capita report said banks which are partly state owned paid nothing to shareholders in 2009, HSBC made small reductions and Standard Chartered paid more cash to shareholders in dividends than it had in 2008. | |
| WHAT IS A DIVIDEND? A dividend is a cash payment from a firm's earnings that is distributed to shareholders - essentially an investor's share of a company's profits which they receive as a part-owner of the company. | WHAT IS A DIVIDEND? A dividend is a cash payment from a firm's earnings that is distributed to shareholders - essentially an investor's share of a company's profits which they receive as a part-owner of the company. |
| Companies can choose to retain profits to reinvest in the company with the hope of creating more profits and therefore increasing the share price. | Companies can choose to retain profits to reinvest in the company with the hope of creating more profits and therefore increasing the share price. |
| Or they can opt to distribute some of the profits to shareholders in the form of dividends. | Or they can opt to distribute some of the profits to shareholders in the form of dividends. |
| A total of 202 listed firms cut their dividends, 74 of which paid none at all. Meanwhile 179 companies increased their payouts and 60 held them steady. | A total of 202 listed firms cut their dividends, 74 of which paid none at all. Meanwhile 179 companies increased their payouts and 60 held them steady. |
| Companies whose earnings are hardest hit in a recession, such as High Street retailers, cut what they paid to shareholders by 25% on average, Capita Registrars reported. | Companies whose earnings are hardest hit in a recession, such as High Street retailers, cut what they paid to shareholders by 25% on average, Capita Registrars reported. |
| Meanwhile defensive firms, which make consistently steady profits, increased dividend payments by at least 5%. | Meanwhile defensive firms, which make consistently steady profits, increased dividend payments by at least 5%. |
| Drug companies, for example, paid 20% more in dividends, while electricity suppliers, food retailers and tobacco producers raised dividends by at least 10%, the report said. | Drug companies, for example, paid 20% more in dividends, while electricity suppliers, food retailers and tobacco producers raised dividends by at least 10%, the report said. |
| Oil wealth | Oil wealth |
| And oil firms increased dividend payments by £3bn on the previous year, with the figures showing that BP and Shell paid a quarter of all UK dividends. | And oil firms increased dividend payments by £3bn on the previous year, with the figures showing that BP and Shell paid a quarter of all UK dividends. |
| "The increasing dominance of the oil companies has left investors highly dependent on a few big stocks to provide them with an income," said Paul Taylor of Capita Registrars. | "The increasing dominance of the oil companies has left investors highly dependent on a few big stocks to provide them with an income," said Paul Taylor of Capita Registrars. |
| But he warned that lower oil prices, tighter margins and unfavourable currency trends had squeezed profits at big oil companies. | But he warned that lower oil prices, tighter margins and unfavourable currency trends had squeezed profits at big oil companies. |
| "This will make it tougher for them to increase their payouts to shareholders," Mr Taylor said. | "This will make it tougher for them to increase their payouts to shareholders," Mr Taylor said. |
| "This is one of the main reasons we do not expect a sharper recovery in dividends in 2010." | "This is one of the main reasons we do not expect a sharper recovery in dividends in 2010." |
| The report said that over the past two years, companies had paid out £123bn in dividends, but absorbed £124bn in fund-raising to underpin their balance sheets - more than 60% of which went to banks, much of it from the taxpayer-funded bailouts. | The report said that over the past two years, companies had paid out £123bn in dividends, but absorbed £124bn in fund-raising to underpin their balance sheets - more than 60% of which went to banks, much of it from the taxpayer-funded bailouts. |
| "It's no wonder dividend payments have collapsed so dramatically," Mr Taylor added. | "It's no wonder dividend payments have collapsed so dramatically," Mr Taylor added. |
| "It would make little sense to pay out dividends, on which most investors must pay tax, only to demand the same money back as part of a rights issue." | "It would make little sense to pay out dividends, on which most investors must pay tax, only to demand the same money back as part of a rights issue." |