Dividend pain for FTSE 100 investors

The FTSE 100's dividend performance has been disappointing with pay-outs falling by over eight per cent in the first half, including the BP hit.

One notable exception was Bradford-based Morrisons where shareholders have been rewarded with a 210m pay-out in the first half of 2010, up from 131.5m in the same period last year following stellar growth at the company.

Capita said that Morrisons' pay-out had boosted the whole grocery sector. In contrast to the FTSE 100, the FTSE 250 saw a 24 per cent rise in pay-outs.

Snaith-based natural chemicals company Croda International increased its dividend by 12 per cent to 22.9m and credit lender Provident Financial's dividend rose two per cent to 57.3m.

However, the biggest Yorkshire disappointment was Drax power station where the dividend was slashed from 155.3m to 38.9m

The group reported a sharp fall in 2009 profits as a result of lower power prices and demand. Drax said 2009 pre-tax profits fell 64 per cent to 158m on revenues 16 per cent lower at 1.47bn.

Capita expects UK dividends to fall by 6.5 per cent in 2010 to 54.7bn. This means UK companies will pay out 19 per cent less to investors than at the peak in 2008.

BP's misfortunes have meant 5.4bn in cancelled dividend payments over nine months.

In the first half, UK listed companies paid out 28.6bn, down 5.4 per cent from 30.3bn last year.

Paul Taylor, head of dividends at Capita Registrars, said: "2010 is going to be another tough year for some income investors due to one company cancelling its dividend.

"Dividends are set to fall again, while yields on bonds and cash remain very low."

In total 39 more companies paid a dividend in the first half of 2010 compared to the same period last year. Meanwhile, the number of companies increasing or reinstating dividends rose to 189, double the number who cut or cancelled them.

The FTSE 100 cut pay-outs by 8.3 per cent to 25.2bn in the first half.

In 2009, the mid caps slashed their payouts to shareholders by 44 per cent, while the FTSE 100 cut by eight per cent.

Cyclical firms are leading the recovery. Having languished at the bottom of the dividend rankings during the recession, sectors sensitive to an upswing in economic activity are increasing their dividends much more quickly than defensive stocks.

Only one defensive sector – food retailing – featured in the top ten fastest growers, mainly thanks to a strong performance at Morrisons.