Increase in Share Repurchases Explained
In the ever-evolving world of finance, the UK's top companies are making a significant shift in their dividend strategies. According to Russ Mould of AJ Bell, this year's ordinary dividends are 6.5% below the all-time high of £85.2 billion paid out in 2018, standing at an anticipated £79.7 billion.
This decline, coupled with the impact of the Covid-19 pandemic, has led to a loss of trust in promises, as noted by many experts. During the pandemic, numerous British blue chips slashed their dividend payouts, resulting in a 44% drop in 2020 compared with 2019.
However, while ordinary dividends may be on the decline, buybacks are gaining traction. Major firms like Shell, AstraZeneca, and Diageo have been among the main shareholders conducting these large-scale buybacks since 2021. This trend is not unique to these companies; Nick Shenton of Artemis Income notes that share buybacks are more prevalent in the UK than ever before, according to Hargreaves Lansdown.
The appeal of buybacks lies in their flexibility for boardrooms compared to dividends. James Gard of Morningstar explains that buybacks offer a more adaptable approach, allowing companies to retain cash and invest in growth opportunities when needed.
The FTSE 100's forecast ordinary dividend yield is 3.8% this year, but when buybacks already announced are factored in, the yield rises to 5.3%. This shift in strategy is reflective of a company's capital discipline, respect for small investors, and prudence, as Paul Schultz of the University of Notre Dame states.
The rise in buybacks is not just a UK phenomenon. Global dividend payouts reached a first-quarter record of $339.2 billion, with UK dividend growth being 'relatively pedestrian' according to Andrew Jones of Janus Henderson.
This shift in dividend trends is influenced by various factors, including Brexit, the pandemic, and surging inflation. Despite these challenges, the UK's blue-chip companies continue to adapt and innovate, ensuring their long-term success.
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