MILAN (Reuters) - A recovery in bank payouts is set to lift UK regular dividends by 6.1% to 88.9 billion pounds ($114.8 billion) in 2023 and make HSBC (LON:HSBA) the biggest payer for the first time since 2008.
The estimate from financial services company Computershare is 2.7 billion pounds higher than its April forecast and reflects improved profit prospects across the rate-sensitive industry.
"The banking sector is benefiting from the interest-rate medicine the Bank of England is administering to cool the inflationary fever," Computershare added.
"Bad debts are likely to rise in due course, but for now banking profits are soaring and dividends are following suit."
Bank payouts are now comfortably the "biggest engine" of payout growth in the UK, it said, marking a stark contrast to three years ago when lenders were prohibited from paying dividends as the COVID-19 pandemic stuck.
Computershare's latest quarterly Dividend Monitor showed bank payouts rose 61% on an underlying basis to around 7.8 billion pounds in the second quarter. The sector is set to raise headline payouts by over 3 billion pounds this year.
Back in May, HSBC said profit in the first quarter trebled as rising rates boosted its income, beating analyst forecasts and helping it pay its first quarterly dividend since 2019.
After HSBC, the top payers in the quarter to end June were miners Rio Tinto (LON:RIO) and Glencore (LON:GLEN), oil major Shell (LON:RDSa) and cigarette maker British American Tobacco (LON:BATS).
These five companies paid 34.8% of total dividends for a combined 11.4 billion pounds, it said.
Despite miners ranking among the top payers, their dividends in the quarter fell by a third, as commodity prices fell, delivering the biggest negative impact on total dividend growth.
Computershare also said that headline payouts were expected to fall by 1.7% to 92.4 billion pounds in 2023 due to lower one-off dividends and negative exchange-rate effects.
That estimate is 1 billion pounds more than what it forecast three months ago.
In the second quarter, UK dividends rose 3.5% on an underlying basis, but fell 9% to 32.8 billion pounds on a headline basis, it said.
The prospective 12-month yield on UK equities has meanwhile risen to just under 4.0% from 3.7% in April, although gilts and cash savings now offer significantly more, it added.
($1 = 0.7747 pounds)