FTSE 100 companies are on course to return a record amount of cash to shareholders in the form of buybacks and dividends this year, but this generosity may not last given pressure on profit margins.

AJ Bell’s latest Dividend Dashboard report shows that while the expected FTSE 100 aggregate dividend of £81.5 billion, up 11% year-on-year, is short of the record £85.1 billion seen in 2018, once you add in the £1.3 billion of special dividends and a record £50.3 billion buybacks, index constituents are on course for their largest ever cash return.

However, while the forecast 2023 dividend total of £87.7 billion would be an all-time high, it would represent a slowdown in growth to 8% and, notably, earnings are not expected to keep pace, growing by just 4%.

Offering some comfort is that dividends on average are expected to remain covered more than two times by earnings, a traditional threshold over which payments are seen as reasonably secure.

Just 20 names are expected to pay nearly three quarters of the FTSE 100’s dividends in 2022, a list dominated by resources, financial and healthcare firms. With oil and mining firms expected to scale back payments in 2023 after a bumper period, next year’s dividend growth relies on banking, insurance and pharma stocks.

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author (Tom Sieber) and editor (Daniel Coatsworth) own shares in AJ Bell.

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