Although UK share prices generally strengthened over June as lockdown measures continued to ease, the outlook for dividend payments remained uncertain.
- UK share prices generally strengthened in June
- Carnival and easyJet lost their places in the FTSE 100 Index
- Dividends may fall by as much as 51% in 2020 vs 2019
To view the series of market updates through June, click here
Although UK share prices generally strengthened over June as lockdown measures continued to ease, the outlook for dividend payments remained uncertain. The FTSE 100 Index rose by 1.5% during June, while the FTSE 250 Index climbed by 0.9%.
“Dividend prospects for UK investors remain unclear”
The yield on the FTSE 100 Index fell from 4.96% to 4.81% during June, having begun the year at 4.36%, while the FTSE 250 Index’s yield strengthened from 3.75% to 3.88% over the month, having started 2020 at 3.39%. Meanwhile, the benchmark UK gilt yield fell from about 0.19% to 0.17% in June, compared with 0.82% at the end of 2019.
Over the first half of 2020, the best-performing FTSE industry sectors included leisure goods and technology hardware & equipment, while the worst-performing sectors included oil equipment & services and automobiles & parts.
During June, infrastructure group Balfour Beatty cancelled its final dividend and, although catering company SSP paid its final dividend – which had been deferred from March – the company urged shareholders to reinvest their payouts in a share placing. Meanwhile, water company Pennon Group revealed a 6.6% increase in its annual dividend, and power company SSE confirmed that it would pay its final dividend in September.
In the quarterly review of FTSE’s UK index constituents, budget airline easyJet and cruise operator Carnival were relegated from the FTSE 100 Index to the FTSE 250 Index, alongside energy company Centrica and engineering firm Meggitt. They were replaced by cyber security company Avast, gambling operator GVC, home repair company Homeserve, and DIY retailer Kingfisher.
Looking ahead, dividend prospects for UK investors remain unclear: Link Asset Services withdrew its formal dividend growth forecast for 2020 until the impact of the pandemic and lockdown became clearer, replacing it with four possible scenarios. Link’s “best-case” scenario assumes that only confirmed and expected cancellations take place, resulting in an annualised decline of 27% for 2020. At the other end of the spectrum, Link’s worst-case scenario assumes that all “at risk” dividends are cancelled, reducing this year’s payouts by 51% compared with 2019. Nevertheless, Link commented: “Even as we face the deepest recession since the second world war, investors can take comfort from the knowledge that tens of billions of pounds of dividends will still be paid this year. More importantly, they will bounce back next year, even under quite bearish scenarios”.
