Dividends down after big UK firms cut payouts

British companies paid out less in dividends in the first quarter of the year than they did a year ago, a report said today.

Firms paid out £13.6 billion in dividends during the first three months of 2010, down 2.5% on the period a year ago, according to Capita Registrars, which cut its forecast for full-year dividend growth.

Heavyweights reducing their payouts were a major factor in the fall, with HSBC cutting £670 million and oil giants BP and Shell paying out £330 million less between them.

Shell's dollar-denominated payout was up 5% on last year, while BP's dividend was the same in dollars, but a stronger pound reduced the sterling payout.

"Even a very strong performance from the rest of UK plc will make it difficult to make up for weakness at the top - as a result we expect the recovery in dividends to take longer than we had initially forecast," said Paul Taylor, head of dividends at Capita Registrars.

Capita Registrars, a unit of Capita Group which provides share registration, downgraded its full-year forecast for UK dividends in 2010 to £59.2 billion, up just 1.3% on last year and down from the 5% growth it forecast in January.

However, it said the annual rate of decline it was the slowest since the recession began and that 186 companies paid a dividend between January and March, up from 161 a year ago.

One hundred and two companies increased or reinstated payments against 56 cutting or cancelling them.

Capita Registrars said a combination of factors limited the fall to 2.5%. This included Cadbury paying a £133 million dividend in February, the last one before it was taken over by Kraft Foods, and Unilever switching to quarterly dividends and paying out £240 million in the first quarter.

Taylor also said smaller companies could have brought forward their payments to the 2009/10 tax year, which ended on April 5, to beat the income tax rise the following day for higher earners rose to 50% from 40%.

Adjusting for these one-offs, dividends were down 7% in the quarter, Capita Registrars said. The FTSE 100 performed poorly compared with the midcap FTSE 250, Capita Registrars said.

Payments from blue chips fell 8% after adjusting for one-offs, while the midcaps paid out 2% more. The FTSE 100 yielded 4% in the quarter, while the FTSE 250 yielded 3.4%.