FTSE 100 dividends forecast to hit new record in 2023 but slowing profit growth and recession pose a threat

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After the index’s autumn rally and cuts to analysts’ dividend forecasts, the FTSE 100 is now expected to yield 3.8% in 2022. The index’s total dividend pay-out is expected to reach £79.1 billion in 2022, compared to £78.5 billion in 2021, excluding special dividends.

Total payments peaked at £85.2 billion in 2018 and 2022 is struggling to reach that mark, as analysts’ estimates for total payments stutter. Concerns over increases in input costs, interest rates (and therefore the cost of capital) and a possible recession are all factors weighing on 2022. A rally in the pound also decreases the sterling-terms value of the dollar-denominated payments from oils and miners.

The oil and gas sector is giving support to dividend growth estimates for 2023, although this may make some investors nervous as oil threatens to close out 2022 where it started the year, at below $80 a barrel.

Analysts do expect 2023 to (just) set a new record-high for FTSE 100 ordinary dividend payments, even if profit growth is expected to slow (and then grind to a complete halt in 2024).

Pre-tax income is expected to rise by 10% in 2023, while ordinary dividends are seen rising by 8% to £85.8 billion. This may reflect the additional room for manoeuvre offered by 2022’s forecast dividend cover of 2.24 times, the best figure since 2012.

The lofty dividend cover ratio may also be the result of more than 40% of FTSE 100 members running share buyback programmes as an alternative means of returning cash to their shareholders.

FTSE 100 firms have, to date, announced £55.2 billion of share buybacks in 2022. That is way in excess of the peaks of 2006 and 2018, which came in between £33 billion and £34 billion.

FTSE 100 dividends forecast to hit new record in 2023 but slowing profit growth and recession pose a threat, chart 1

Source: Company accounts, Marketscreener, analysts’ consensus forecasts

Top 10 dividend growers and cutters of 2022

Dividend increases in the index are particularly heavily concentrated in a limited number of names, with miner Glencore leading the way.

2022 E

Dividend growth (£ million)     Dividend decline (£ million)  
Glencore 3,269   abrdn (23)
HSBC 1,198   Unilever (30)
Shell 990   Admiral Group (33)
AstraZeneca 528   Fresnillo  (79)
BP 323   Persimmon (127)
Compass 311   Berkeley (244)
British American Tobacco 301   Anglo American (304)
Haleon* 277   Antofagasta  (730)
Aviva 259   GSK (1,586)
Next 245   Rio Tinto (1,641)

Source: Company accounts, Marketscreener, consensus analysts’ forecasts. *Haleon spun out of GSK in July 2022

Although it is worth noting that miners’ dividend payments are expected to fall in 2023 and 2024, by some £1.3 billion in total across the two years, presumably as a reflection of fears that a recession will dent demand for industrial metals.

FTSE 100 dividends forecast to hit new record in 2023 but slowing profit growth and recession pose a threat, chart 3

Source: Company accounts, Marketscreener, consensus analysts’ estimates. Excludes special dividends

Dividend cover strongest since 2012

The aggregate earnings cover ratio for the FTSE 100 is expected to come in at 2.24 times in 2022, according to analysts’ consensus and dividend forecasts. This is way higher than the 2.02 times earnings cover that was on offer in 2021 and represents the best earnings cover since 2012, when the ratio stood at 2.50 times.

Companies are choosing to let earnings growth outpace dividend growth so they can reinvest in their businesses, bolster balance sheets and rebuild cover. As a result, their shareholder distributions may not quite be the same hostage to fortune that they proved to be in 2016 or 2020, should another unexpected shock emerge from left field.

FTSE 100 dividends forecast to hit new record in 2023 but slowing profit growth and recession pose a threat, chart 1

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

The ten stocks offering the highest yields in 2022

At the time of writing, Persimmon is the highest-yielding individual stock, even allowing for an expected dividend cut, while fund manager M&G is also expected to offer a double-digit yield in 2022.

Forecast yields of more than 10% may make investors a little wary, given the shocking record of firms previously expected to generate such bumper returns, including the likes of Vodafone, Shell and, when they were in the FTSE 100, Royal Mail, Marks & Spencer and Centrica. All were forecast to generate a yield in excess of 10% at one stage or another and cut the dividend instead.

Nothing can be taken for granted, especially if a recession hits, and it can be argued that Persimmon’s share price is already starting to factor in further reductions in dividend payments.

  Dividend yield (%) Dividend cover (x)
Persimmon 15.3% 1.08 x
M & G 10.4% 0.90 x
Barratt Develop. 9.3% 1.37 x
Aviva 8.7% 0.52 x
Vodafone 8.7% 0.89 x
Taylor Wimpey 8.6% 2.00 x
Admiral Group 8.4% 0.80 x
Phoenix Group 8.3% 0.47 x
Glencore 8.0% 3.02 x
Rio Tinto 7.9% 1.60 x

Source: Company accounts, Marketscreener, analysts’ consensus forecasts, Refinitiv data. Ordinary dividends only

Often defending a high yield can be a burden for a firm, as it sucks cash away from vital investment in the underlying business, or can be a sign that the company is in trouble and investors are demanding such a high yield to compensate themselves for the (perceived) risks associated with owning the equity.

Top 20 set to pay over 70% of FTSE 100 dividends

Just ten stocks are forecast to pay dividends worth £42.8 billion, or 54% of the forecast total for 2022. The top 20 are expected to generate 72% of the total index’s pay-out, at £57.3 billion.

Anyone who believes the UK stock market is attractive on a yield basis needs to have a good understanding of, and strong view on, those 20 names in particular.

2022 E

  Dividend (£ million) Dividend yield (%) Dividend cover (x) Cut in last decade?
Shell 5,958 3.6% 5.24x 2020
Glencore 5,744 8.0% 3.02x 2013, 2015, 2016, 2020
Rio Tinto 5,561 7.9% 1.60x 2016
BAT 5,267 6.8% 1.25x No
HSBC 4,854 4.9% 2.27x 2019, 2020
AstraZeneca 3,760 2.2% 1.15x No
Unilever 3,709 3.5% 1.26x No
BP 3,403 4.0% 3.61x 2011, 2020
GSK 2,421 4.2% 1.87x 2022
Vodafone 2,114 8.7% 0.89x 2018
Anglo American 2,050 4.6% 2.31x 2015, 2016, 2020
National Grid 2,013 5.4% 1.25x No
Diageo 1,735 2.0% 1.99x No
Lloyds 1,503 4.8% 2.89x 2019, 2020
Imperial Brands 1,323 6.7% 1.88x 2020
NatWest Group 1,322 5.3% 2.26x 2019
Reckitt Benckiser 1,274 3.0% 1.94x No
Legal & General 1,127 7.4% 1.79x No
Barclays 1,110 4.4% 4.29x 2016, 2019, 2020
Aviva 1,088 8.7% 0.52x 2012, 2013, 2019

Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Ordinary dividends only

Shell is expected to be the single biggest dividend paying stock within the FTSE 100 in 2022, with Glencore, Rio Tinto and British American Tobacco close behind it.

This may have ESG-oriented investors gnashing their teeth, especially as they may argue both firms are acting too slowly in their attempts to shift their business mix to more renewable sources of energy. Shell and fellow oil major BP, also a top-ten dividend contributor, have a tricky balancing act as they look to get the best out of their existing assets, reinvest for the future (without overpaying here, amid the mad scramble for ‘green’ assets) and keeping shareholders sweet with cash returns.

View our Dividend dashboard for Q4

These articles are for information purposes only and are not a personal recommendation or advice.

Forecasts aren't a reliable guide to future performance. Past performance isn't a guide to future performance, and some investments need to be held for the long term.


russmould's picture
Written by:
Russ Mould

Russ Mould has 28 years' experience of the capital markets. He started at Scottish Equitable in 1991 as a fund manager and in 1993 he joined SG Warburg, now part of UBS investment bank, where he worked as equity analyst covering the technology sector for 12 years. Russ joined Shares in November 2005 as technology correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media by AJ Bell Group, he was appointed AJ Bell’s Investment Director in summer 2013.