This article has been adapted from our sister site, Fool U.K.

In the second quarter of this year, the cash dividends paid to shareholders by U.K.-listed companies hit their highest level since the collapse of U.S. investment bank Lehman Brothers in September 2008. Hence, in my view, it's time investors stuffed a few more dividend giants into their portfolios.

A cataract of cash
Thanks to improving trading conditions and strengthened balance sheets, British businesses hiked their dividends by more than a quarter (27%) on the second quarter of 2010, according to the latest Capita Registrars Dividend Monitor Report. This growth takes dividends to a three-year high, which is great news for investors.

Between April and June 2011, total dividends hit 19.1 billion pounds. In total, 247 companies paid a dividend, versus 221 a year earlier. Of these, 210 raised, reintroduced or began payments, with only 32 companies cutting or canceling dividends. Thus, companies raising their dividends outnumbered those cutting their payouts by 6.6 to one.

Here's how second-quarter dividends have bounced back since last year's low:

Q2 of

(in billions of pounds)


2007 22.0  
2008 22.0 -0%
2009 16.3 -26%
2010 15.0 -8%
2011 19.1 27%

As you can see, second-quarter dividends peaked in 2007 and 2008 at around 22 billion pounds, before plunging to 15 billion pounds in Q2 2010. They have since bounced back by 4.1 billion pounds.

Capita Registrars found that, after adjusting for special dividends and the loss of 5.4 billion pounds of dividends from BP (NYSE: BP), underlying dividends have increased for five quarters in a row. BP paid out 1.8 billion pounds in the second quarter of 2010, but the disastrous oil spill in the Gulf of Mexico saw BP's dividend suspended before being resumed at 900 million pounds in the latest quarter.

The dividend recovery is very broadly spread across sectors and companies, with higher commodity prices allowing miners to boost their payouts to 1.85 billion pounds, versus under 500 million pounds in the second quarter of 2010. This was partly due to a 61p-a-share special dividend from Antofagasta, worth 540 million pounds, plus the payment of a final dividend for the first time in four years from mining giant Anglo American, worth another 360 million pounds.

Nearly 10 billion pounds more for owners
For 2011 as a whole, Capita Registrars is forecasting total dividends of 66 billion pounds, up more than a sixth (17%) on 2010. In other words, companies are poised to pump more than 9.5 billion pounds in extra cash to their owners this year, versus 2010.

As in previous reports, Capita Registrars pointed out the intense concentration of dividends among certain sectors and megacap companies. The sectors paying out the biggest proportion of dividends were:

  1. Oil and gas (15%)
  2. Banks (12%)
  3. Mining (10%)
  4. Life insurance (10%)
  5. Tobacco (9%)
  6. Pharma and biotech (6%)
  7. Others (38%)

What seems remarkable is that the banking sector placed second, despite zero dividends from bailed-out banks Lloyds Banking Group (NYSE: LYG) and Royal Bank of Scotland (NYSE: RBS). In fact, this second place is largely down to the colossal 2.4 billion pound payout from megabank HSBC Holdings (NYSE: HBC).

The top five companies paid out 11.2 billion pounds in dividends in the first half of 2011, which is a third (33%) of the total. The next 10 dividend giants added 9.6 billion pounds, which means that 20.8 billion pounds (61% of all dividends) was paid out by just 15 U.K.-listed, multinational corporations. 

Overall, 89.3% of all dividends came from FTSE 100 firms, plus another 9.1% coming from the FTSE 250. Thus, all other U.K.-listed companies combined paid out just 1.6% of total dividends.

Good for income-seekers
The FTSE 100 has a forecast dividend yield of 3.6%, with the second-tier FTSE 250 index yielding 2.6%, but dividend growth was steeper among the 250 mid-cap firms.

Even so, Footsie firms are looking very attractive, particularly giant companies trading on relatively low price-earnings ratio while paying out generous dividends (often in excess of 5% a year). For investors looking to beat inflation and enjoy rising incomes, megacap shares certainly have their attractions right now.

What's more, I suspect that we can look forward to more dividend hikes in the second half of 2011, further boosting dividend yields for both the FTSE 100 and FTSE 250 indices. For example, when GlaxoSmithKline (NYSE: GSK) reports its second-quarter results tomorrow, I expect its dividend to be hiked from 15p to 16p, as happened in GSK's first quarter.

Feel the weight of that income
It's often said that in the short run, the stock market is a voting machine, but in the long run, it is a weighing machine. As dividends climb, they will slowly drag the market upwards over time, despite short-term worries about the eurozone, a potential U.S. debt default, and so on.

In summary, for investors seeking a decent income, plus the possibility of inflation-beating earnings growth, then big-company shares look to be a solid bet right now.

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Both Cliff and The Motley Fool own shares in GlaxoSmithKline. Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.