Frank O'Donnell

Shareholders in UK companies saw their dividend payments cut by £10bn last year, according to a report.

According to Capita Registrars, UK companies paid out £56.9bn to investors in 2009, 15% less than in 2008. Investors in the banking sector were worst hit, said the report after the industry cut payouts by £6bn from 2008 levels.

It predicted dividends would grow this year but only by 5%, because of a sluggish economic recovery. Dividends are crucial to the financial well-being of millions of people through the investments help by their pension fund and the dividends underpin the valuation of shares by the stock market. Dividends are vital to generate the cash flow necessary to fund pensions being paid currently and in the future.

A total of 202 listed firms cut their dividends, 74 of which paid none at all. Meanwhile 179 companies increased their payouts and 60 held them steady.

Companies whose earnings were hardest hit in a recession, such as High Street retailers, cut what they paid to shareholders by 25% on average, Capita Registrars reported.

Meanwhile, dividend payments from defensive stocks, which are those firms deemed to make consistently steady profits, increased by at least 5%.

Drug companies, for example, paid 20% more in dividends, while electricity suppliers, food retailers and tobacco producers raised dividends by at least 10%, the report said. Oil firms also increased dividend payments by 3bn on the previous year, with figures showing BP and Shell paying a quarter of all UK dividends.