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Big Dividend Payers May Be Next After UK Windfall Tax on Energy

Published 05/27/2022, 03:41 AM
Updated 05/27/2022, 04:00 AM
© Reuters.  Big Dividend Payers May Be Next After UK Windfall Tax on Energy

(Bloomberg) -- U.K. Chancellor of the Exchequer Rishi Sunak just slapped a £5 billion ($6.3 billion) levy on energy companies to help fund support for Britons facing a cost-of-living crisis. Other big dividend payers, including miners and consumer-goods firms, could be next.

With the country facing a record squeeze on living standards, public perception of companies that are believed to be over-earning is putting pressure on the government to intervene. Stocks in consumer-sensitive sectors such as food retail and telecoms could also be “vulnerable to increasing political interference,” according to Roger Jones, head of equities at London & Capital.

“It’s possible that other sectors get targeted, given how much pressure the chancellor is under to help out struggling consumers,” said Alexandra Jackson, manager of the Rathbone UK Opportunities Fund. “Last year, the supermarkets were in the frame for a windfall tax because of perceived excess earnings during the pandemic. But the government will be keen to ensure an obvious pattern doesn’t emerge.”

While imposing a windfall tax on the profits of oil and gas producers, Boris Johnson’s government left the door open on applying a similar levy to power generators making “extraordinary profits.” That sent shares of Centrica Plc (LON:CNA), SSE (LON:SSE) Plc and Drax Group (LON:DRX) Plc slumping on Thursday.

Miners are again expected to make up a large chunk of FTSE 100 dividends this year, with Rio Tinto (NYSE:RIO) Plc forecast to be the single biggest paying stock in the index, according to data from AJ Bell. Glencore (OTC:GLNCY) Plc and Anglo American (LON:AAL) Plc are also expected to be among the top 10 payers, alongside British American Tobacco (NYSE:BTI) Plc, Unilever (NYSE:UL) Plc and AstraZeneca (NASDAQ:AZN) Plc, the data show.

To be sure, other market strategists believe paying high dividends alone won’t be enough to attract levies, with taxes likely to be focused on areas contributing to the surge in inflation to a 40-year high. “I don’t expect a Conservative chancellor to engage in more broad-based windfall taxation,” said James Athey, investment director at abrdn.

Here’s a list of stocks expected to be the 10 biggest contributors to FTSE 100 dividends in 2023, according to Bloomberg data. Figures in parenthesis show the expected contribution as a percentage of the overall amount for the benchmark:

  • Shell (LON:RDSa) Plc (8.5%); shares have surged 48% year-to-date
  • HSBC Holdings Plc (LON:HSBA) (7.9%); stock +17% YTD
  • Rio Tinto (7.8%); shares +16% YTD
  • British American Tobacco (7.1%); stock +30% YTD
  • Unilever (5.3%); shares -12% YTD
  • AstraZeneca (5.0%); stock +22% YTD
  • BP (NYSE:BP) Plc (4.8%); shares +32% YTD
  • Anglo American (3.4%); stock +26% YTD
  • GSK Plc (3.1%); shares +9.2% YTD
  • Vodafone Group (LON:VOD) Plc (2.8%); stock +17% YTD

 

Latest comments

more taxes = more inflation
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