The outlook for income-seeking investors continued to deteriorate during May as companies sought to shore up their balance sheets by cancelling dividend payouts.
- Global dividends are set to decline by between 15% and 35% in 2020
- Yields continued to weaken
- Demand for UK equity funds improved
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The outlook for income-seeking investors continued to deteriorate during May as companies sought to shore up their balance sheets by cancelling dividend payouts. Whilst giving evidence to the Treasury Select Committee during the month, Bank of England (BoE) Governor Andrew Bailey reiterated his advice to businesses to scrap payments. Moreover, companies that take advantage of the COVID Corporate Financing Facility (CCFF) will be expected to provide a letter to HM Treasury that “commits to showing restraint on the payment of dividends” and on cash bonuses to management. According to Janus Henderson’s Global Dividend Index, the best-case scenario for global dividends in 2020 sees a 15% decline to US$1.21 trillion – a drop of US$213 billion. In comparison, the worst-case scenario sees a drop of 35% to US$9.33 billion.
“BoE Governor Andrew Bailey reiterated his advice to businesses to scrap payments”
Yields continued to weaken during May: the yield on the FTSE 100 Index declined from 5.22% to 4.96%, while the FTSE 250 Index’s yield fell from 3.89% to 3.75%. Meanwhile, the benchmark UK gilt yielded 0.19% at the end of the month. During May, the FTSE 100 Index rose by 3%, while the FTSE 250 Index climbed by 3.6%. FTSE 100 Index constituent Whitbread suspended its final dividend and announced a rights issue designed to raise £1 billion. In contrast, automotive parts company TI Fluid Systems was prevented from paying its final dividend following a shareholder vote at its AGM.
Over the year to date, most FTSE industry sectors are in negative territory, with the majority posting double-digit negative performance. The best-performing FTSE sectors include leisure goods, technology hardware & equipment, pharmaceuticals & biotechnology, health care, and food & drug retailers. At the other end of the performance spectrum, the worst-performing sectors – which have all fallen by more than 35% – include oil equipment & services, automobiles & parts, banks, oil & gas producers, fixed-line telecoms, and travel and leisure.
Having suffered record outflows in March, retail funds experienced net retail inflows of £4 billion during April, according to the Investment Association (IA), with actively managed funds attracting almost two-thirds of investors’ money. Equity funds enjoyed net retail sales of £2.4 billion, and the UK All Companies sector was the second most-popular IA sector behind Global. Investors’ appetite for funds in the UK Equity Income sector rebounded sharply, and UK Smaller Companies funds also experienced an uptick in demand.
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