15% fall in share dividends leaves pensions exposed

02/07/2010 (15 h 27 m ago)

Sector left dangerously dependent on oil, tobacco and drugs firms as banks slump British companies paid out £10bn less in dividends in 2009 compared with the previous year leaving pension and other investment funds dangerously dependent on carbon-heavy oil groups, BP and Shell, for a quarter of all such income, new research shows. A total of £57bn was handed out to shareholders last year, 15% less than in the previous 12-month period, with 202 firms cutting their dividends and 74 paying nothing at all, according to Capita Registrars Research. The data shows the financial crisis led to a £6bn fall in dividends from the banks, leaving drug, tobacco and oil companies to fill some of the gap. "The recession has hit dividends particularly hard because companies have not only had to cope with falling profits, but also massive pressure on their ability to finance themselves. Preserving cash has been a top priority," said Paul Taylor, head of dividends at Capita Registrars, who used data provided by the financial information specialists Exchange Data International to prepare the report. "Much of the banking sector is either in state or foreign hands, while the ability of the remaining independents to pay dividends is severely constrained by the need to rebuild their balance sheets... Among retailers, only the supermarkets have managed to keep the dividends flowing," he added. Capita points out that investors are now "heavily dependent" on just five companies – BP, Shell, HSBC, Vodafone and Glaxo­SmithKline – for 47% of all dividends, giving those businesses enormous clout in the investment markets and around government. Yet Shell faces demands from its own shareholders to move away from its controversial tar sands investments in Canada, while the Co-op's investment arm will today unveil plans to oppose BP's involvement in this area. "The increasing dominance of the oil companies has left investors highly dependent on a few big stocks to provide them with an income," said Taylor. "Oil has fuelled the engine of UK dividends in the last two years. Lower oil prices, tighter refining margins, slower production growth and unfavourable currency trends have put profitability under pressure at the big oil companies and will make it tougher for them to increase their payouts to shareholders. Indeed, the latest news from the oil sector may even mean our forecast for 2010 is optimistic." Shell reported last week a 75% downturn in profits during 2009. It said there would be no further increase in the first quarter of 2010 as the future looked difficult. BP also gave a downbeat assessment of future trading opportunities. Capita believes dividend payments from UK companies should recover with the economy over the next year, reaching an estimated £60bn, 5% up on 2009. Meanwhile, UK companies raised a record £73bn from new equity as banks and other businesses fought to rebuild their balance sheets. "There has been an unprecedented flow of capital from investors to companies," said Taylor. Pensions Shares Banks and building societies Credit crunch Oil Occupational pensions Terry Macalister guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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