UK company dividends will show headline growth of 24.4% to £79.5 billion this year, according to the latest UK Dividend Monitor from Link Group.

Underlying dividends, which exclude special dividends, are set to rise 13.4% to £71.2 billion.

However, the recovery in dividends has a long way to go — underlying dividends reached £100.3 billion before the pandemic.

The Link Group’s UK Dividend Monitor for Q2 2021 said: “Q2 dividends jumped 51.2% to £25.7bn on a headline basis, ahead of our expectations …

“On an underlying basis (i.e. excluding special dividends), payouts rose 43.8% to £24.3bn, recovering to one sixth below the pre-pandemic Q2 2019 …

“Companies restarting dividends were the main driving factor – accounting for nine tenths of the increase year-on-year …

“The three biggest dividend-paying sectors are mining, banking and oil — of the £8.7bn recovery in UK plc Q2 dividends year-on-year, the mining and banking made up over two thirds of the increase, but the oil sector acted as a brake.”

The Link Group said the second quarter compares to the low point of the pandemic in Q2 2020, providing an “exceptionally favourable” base.

“In Q2 2020, three quarters of companies cancelled or cut dividends,” said Link.

“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 and delivered a stellar bounce-back.

“In Q2 2021, around nine tenths of the increase came from companies that had cancelled dividends in Q2 2020 …

“The upside tailwinds will get less favourable from here, reflecting the unwinding of Q2’s positive timing effects and an increasingly more challenging year-on-year comparisons that reflect the progressive slowdown in dividend declines in 2020.

“On the positive side, Link Group expects banking dividends to rebound now that regulatory limits have been scrapped, but not immediately to their pre-pandemic levels as share buybacks will also feature.”

Ian Stokes, Link Group’s Managing Director, Corporate Markets UK and Europe said: “We have regularly cautioned over the last year that dividend patterns will be very noisy as we move through the recovery phase.

“This will make for choppy waters in the months ahead, but it does not mean we are pessimistic.

“Far from it.

“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 £100.3bn, even before one-off special payouts were added, so the recovery has a way to run.”