Not only UK dividends are up, so are profit warnings

According to research published today by share registration company Capita Registrars. Dividends rose last year for the first time since 2008 as the number of companies starting or increasing payments outnumbered those cutting them by four to one. A total of 438 British companies paid dividends in 2011, barely up from 434 in 2010. 373 firms increased, started or reinstated dividends, while 90 slashed or cancelled payments.

Financials contributed £13.2 billion, a 12 percent increase from 2010 but a third lower in cash terms than their contribution in 2007. Oil and gas companies trailed financials, accounting for one sixth of total payments.

Royal Dutch Shell was the biggest payer, handing out £6.7bn. BP paid 1.8 billion pounds more in dividends in 2011 than the year before, when the company cancelled three dividend payments following the Gulf of Mexico oil spill.

2012 dividend expectations

Dividend payments are expected to reach £75 billion pounds in 2012, with special dividends a big contributor. However, in real terms dividends are unlikely to outperform 2008 dividends until 2013, according to Capita.

Capita expects dividend pay-outs to rise by 11 percent this year, with Dividend Income Investor.com’s favourite mobile telecom pick Vodafone expected to deliver the most generous payout.

Vodafone will pay shareholders an extra £2 billion in February out of money earned from its stake in Verizon Wireless. The world's largest mobile operator by revenue will account for almost 10 percent of all dividends paid in the UK in 2012, Capita said. Potentially supplanting Shell's position as the UK's top dividend payer this year.

Profit warnings on the up

Research published today by Ernst & Young revealed a 70 per cent leap in the number of profit warnings, from U.K.-listed companies, from 51 in the third quarter to 88 in the final quarter, 2011, marking the biggest jump in a decade. During the year as a whole, there were 278 profit warnings, compared to 196 the previous year.

Profit warnings in the final three months of last year from the likes of retailer Mothercare and Premier Foods pushed the proportion of listed companies who put out warnings in 2011 up to 14 per cent, the highest since the financial crisis first started in 2008.

At 14%, the proportion of listed companies putting out warnings in the fourth quarter reached its highest level since 2008.

Profit warnings up- expect analysts to start downgrading their expectations

The sharp rise in warnings across all sectors demonstrated that 2011 was a tough year for companies and that the new year is likely to continue in the same vein with the gap between the winners and losers widening.

“Many businesses are still expanding profitably, but others – the zombie companies – remain moribund by debt or defunct business models, unable to build value or gain momentum in these challenging economic conditions,” he added.

Profit warnings in the first weeks of the New Year have come primarily from companies vulnerable to contract and order cancellations, as customers wait for more economic certainty before committing to further significant outlays, said Mr Hudson.

What does it all mean for us long term dividend income investors?

If profits are taking a temporary “dip”, during first half 2012, taking with them the share prices of many high quality dividend paying companies to historically undervalued levels, we may well have some nice buying opportunities ahead.

Steven Dotsch - managing editor - Dividend Income Investor.com