UK dividends from equities surpassed £20 billion for the third quarter this year, according to a report released by Capita Registrars.

Dividends rose 15.9 per cent year on year, with the £55 billion distributed to shareholders in the first nine months of 2011 nearly topping the figures for the whole of 2010.

The results were the best since the second quarter of 2008, while FTSE 100 dividend growth beat the FTSE 250’s for the first time since the end of 2009.

While the banking sector is still struggling, multi-national corporations, especially in the mining and luxury goods sectors, are flush with cash.

The results were distorted by some one-off impacts, such as BP reinstating their dividend payments, but the results still suggest that UK companies are in a robust position.

‘Dividends are growing faster than we expected as UK firms shrug off the worst stock market conditions since 2008 and continue to increase payouts to shareholders,’ said Charles Cryer, CEO of Capita Registrars.

Capita estimates that the prospective equity yield for the whole of 2011 will be 3.8 per cent and, because bond yields have plummeted 1.1 per cent in the third quarter, this would take equity yields to a
spread over bonds of 140bp.

‘A yield this high relative to bonds is very rare indeed, but risks to capital are great, and the market may be judging that earnings, and therefore dividends, are vulnerable to a renewed economic slowdown,’
said Cryer.

He admitted that it was unclear whether dividend growth could continue next year.

‘Capita still expects dividends to grow, but the headline rate is likely to be somewhat slower,’ Cryer added.