Companies return value to shareholders.

18th May, 2021

As investors became increasingly sanguine about prospects for the UK economic recovery, share prices generally rose during April and several major companies announced dividend increases and share buybacks.

Over the month, the FTSE 100 Index climbed by 3.8%, while the FTSE 250 Index increased by 4.5%. Since the start of the year, the best-performing FTSE industry sectors include industrial metals & mining and industrial transport, while the worst performers include oil & gas producers and oil equipment. The FTSE 100 Index’s yield fell from 3.31% to 3.08% during April, while the FTSE 250 Index’s yield declined from 1.98% to 1.85%. In comparison, the yield on the benchmark UK gilt remained largely unchanged at 0.84%.

Following an earlier-than-expected reduction in its net debt levels, oil company BP started its share buyback programme by repurchasing US$500 million-worth of shares. The company had not been expected to begin buybacks until the end of 2021 or the beginning of 2022. BP cut its dividend last year but has kept the payout flat with the intention of returning value to shareholders through buybacks. Elsewhere in the energy sector, Royal Dutch Shell revealed strong first-quarter profits that were boosted by higher oil prices. The company intends to raise its quarterly dividend payment to shareholders by 4% but will not initiate a buyback programme until debt levels have fallen to below US$65 billion. Meanwhile, consumer goods manufacturer Unilever announced better-than-expected first-quarter sales alongside plans for a share buyback of up to €3 million.

Although UK dividends fell during the first quarter of 2021, their decline was the slowest since the onset of the coronavirus pandemic, according to Link Asset Services’ Dividend Monitor. Payouts fell at an annualised rate of 26.7% to £12.7 billion on an underlying basis over the period, dampened by cuts from BT, Compass, AB Foods and EasyJet. Over the past 12 months, dividends dropped by 41.6%. Half of UK companies increased, resumed, or held their dividends steady during the first quarter, compared with one third during the final three months of last year. Looking ahead, Link expects total dividends to grow at an underlying rate of 5.6% during 2021 to reach £66.4 billion, led by the return of payouts from UK banks. Link commented “After the year-long pandemic winter for dividends, the buds of spring are about to burst into bloom”.

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