Companies restarting dividends following pausing them due to the economic impact of the Coronavirus pandemic were the main driving factor, according to the latest UK Dividend Monitor report from Link Group. In Q2, around nine tenths of the increase came from companies that had cancelled dividends in Q2 2020.

On an underlying basis (which excludes special dividends), second-quarter dividend payouts were 43.8% higher at £24.3bn, one sixth lower than their pre-crisis average.

Link Group now expects headline dividend growth of 24.4% to a new total of £79.5bn for this year. Underlying dividends, which exclude specials, are set to rise by 13.4% to £71.2bn, 3.9% or £2.7bn more than Link Group’s previous April forecast.

The three biggest dividend-paying sectors for Q2 were mining, banking and oil. Of the £8.7bn recovery in Q2 dividends year-on-year, the mining and banking made up over two thirds of the increase.

The bounce-back was fastest for mid-caps, reflecting the greater decline they suffered in 2020.

Ian Stokes, managing director, corporate markets UK and Europe, at Link Group said: “We have regularly cautioned over the last year that dividend patterns will be very noisy as we move through the recovery phase. This will make for choppy waters in the months ahead, but it does not mean we are pessimistic. Far from it.

“As normal life returns to Britain’s streets, so it is returning to business too. All the indicators of economic growth look very encouraging, and companies have come out of the crisis in most cases with their balance sheets looking strong. Resurgent profits and healthy bank balances mean more dividends for shareholders. These wider trends also help explain why the regulator has lifted the embargo on dividends from capital-rich banks.

“Before the pandemic, dividends reached £100.3bn, even before one-off special payouts were added, so the recovery has a way to run.”