By Lars Mucklejohn
Banks paid more in dividends than any other UK sector last year for the first time since the financial crisis, according to new research, after interest rate hikes gave lenders like HSBC wider margins to raise investor rewards.
Figures from financial services company Computershare showed British lenders dished out £13.8bn in 2023, up nearly a third (£3.2bn) from the previous year and representing 15 per cent of the overall figure.
Total UK regular dividends came in at £88.5bn for 2023, up 5.4 per cent from the previous year. The headline total, including volatile special dividends, ticked down 3.7 per cent to £90.5bn.
The end of 2023 saw a spike in dividend growth, with a 15.6 per cent increase between the third and fourth quarters.
The banking sector’s strong performance was driven by Asia-focused giant HSBC, which awarded £8.4bn over the course of last year – nearly double the £4.4bn it paid in 2022.
HSBC resumed its quarterly dividends after suspending them during the Covid-19 pandemic and reasserted itself as the UK’s top dividend payer – last holding the title in 2008.
It has promised a $4bn (£3.1bn) special dividend from the sale of its Canadian business to RBC, which received government approval last month.
Banks’ profits were boosted by the Bank of England hiking interest rates 14 times in a row until last September, giving them scope for much larger dividends.
HSBC’s most recent results saw profits more than double year-on-year and revenue jump 40 per cent.
“The return to prominence by the banks is really remarkable,” said Mark Cleland, chief of issuer services at Computershare. “Thirteen years of rock-bottom interest rates made it very hard for the sector to make profits, but the need to quell inflation with higher interest rates means the last two years has delivered a dramatic turnaround.”
Britain’s biggest banks are due to release their fourth-quarter results in the coming weeks, with earnings expected to take a hit from higher-for-longer interest rates and fierce competition for deposits and mortgages.
Computershare highlighted the oil sector as another key driver of dividend growth, with high energy prices fuelling a 15.8 per cent year-on-year jump in payouts.
Utility firms, with inflation-linked dividend policies, also paid record amounts last year.
Dividend growth was slowed by large share buyback programmes from companies including HSBC, Shell, Glencore, BP and Aviva.
Computershare calculated that without these programmes, which bring down the number of shares in issue, dividend growth would have been one third faster at 7.2 per cent.
The overall figure was also dragged down by mining companies, which dropped to third place after leading the charge in 2021 and 2022 as lower commodity prices hit cash flows.
In 2024, Computershare expected higher special dividends to power headline growth of 3.7 per cent to £93.9bn, with regular payouts estimated to rise two per cent to £89.8bn.
