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There is no prospect of a sharp rise in dividend payments

Shareholders in UK companies saw their dividend payments cut by £10bn last year, according to a report.

UK companies paid out £56.9bn to investors in 2009, 15% less than in 2008, said Capita Registrars.

Investors in the banking sector were the worst hit, said the report, after the industry cut payouts by £6bn from 2008 levels.

It predicted dividends would grow this year but only by 5%, because of a sluggish economic recovery.

Dividends underpin the valuation of shares by stock market investors and are crucial to the financial well-being of millions of people through the investments held by their pension funds.

Pension schemes typically invest in a wide range of assets, some of which are bought primarily in anticipation of their value going up - "capital growth" in the stock market's jargon.

But dividends are vital to generate the cash flow necessary to fund pensions being paid currently and in the future.

Any long-term downturn in the flow of dividends would increase the deficits currently being recorded by pension schemes, as they would be required to put away an even greater stock of assets now to generate the cash they need.

Justin Urquhart-Stewart of Seven Investment Management said: "A 7% return on your investment each year roughly doubles your money over 10 years. So cutting the dividend will directly reduce the fuel need to power your pension."

Banks

The Capita report said banks which are partly state-owned paid nothing to shareholders in 2009, HSBC made small reductions and Standard Chartered paid more cash to shareholders in dividends than it had in 2008.

A total of 202 listed firms cut their dividends, 74 of which paid none at all. Meanwhile 179 companies increased their payouts and 60 held them steady.

Companies whose earnings were hardest hit in a recession, such as High Street retailers, cut what they paid to shareholders by 25% on average, Capita Registrars reported.

Meanwhile, dividend payments from defensive stocks, which are those firms deemed to make consistently steady profits, increased by at least 5%.

Drug companies, for example, paid 20% more in dividends, while electricity suppliers, food retailers and tobacco producers raised dividends by at least 10%, the report said.

Oil wealth

Oil firms increased dividend payments by £3bn on the previous year, with the figures showing that BP and Shell paid a quarter of all UK dividends.

"The increasing dominance of the oil companies has left investors highly dependent on a few big stocks to provide them with an income," said Paul Taylor of Capita Registrars.

But he warned that lower oil prices, tighter margins and unfavourable currency trends had squeezed profits at big oil companies.

"This will make it tougher for them to increase their payouts to shareholders," Mr Taylor said.

"This is one of the main reasons we do not expect a sharper recovery in dividends in 2010."

The report said that over the past two years, companies had paid out £123bn in dividends, but absorbed £124bn in fund-raising to underpin their balance sheets - more than 60% of which went to banks, much of it from the taxpayer-funded bail-outs.

"It's no wonder dividend payments have collapsed so dramatically," Mr Taylor added.

"It would make little sense to pay out dividends, on which most investors must pay tax, only to demand the same money back as part of a rights issue."

All News supplied by the BBC