Eight years of growth was wiped off UK dividends during 2020, according to Link Group’s Dividend Monitor. Dividend payments fell by at a headline rate of 44% year on year as companies sought to shore up their finances in response to the coronavirus pandemic.
- Two-thirds of UK firms cut or cancelled payouts between Q2 and Q4 2020
- Q4 dividends proved better than expected
- Dividends unlikely to regain previous highs until 2025
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Eight years of growth was wiped off UK dividends during 2020, according to Link Group’s Dividend Monitor. Dividend payments fell by at a headline rate of 44% year on year as companies sought to shore up their finances in response to the coronavirus pandemic. UK firms paid out £61.9 billion in dividends over the year, representing their lowest annual total since 2011 and two-thirds of companies cancelled or cut their dividends between the second and fourth quarters.
“UK dividends fell more steeply than many other countries during 2020”
UK dividends fell more steeply than many other countries during 2020 because of their heavy exposure to companies in the financial and oil sector, which accounted for two-fifths and one-fifth respectively of total cuts. Nevertheless, the fourth quarter of 2020 proved better than expected for payments as some companies – including supermarket chain Sainsbury’s and plumbing and heating product distributor Ferguson – restored suspended payments. Link commented: “There are reasons for optimism, but the resurgent pandemic has pushed back the reopening of the economy even further, especially in the UK”.
Link’s best-case scenario for 2021 would see payouts of £66 billion, representing underlying growth of 8.1%. Its worst-case scenario suggests a 0.6% drop to £60.7 billion. Looking further ahead, Link does not expect UK dividends to return to their previous highs until 2025 at the earliest.
Having cancelled dividend payouts in July last year in response to the Covid-19 pandemic, housebuilder and FTSE 100 Index constituent Barratt Developments confirmed that it would reinstate its payout in February following a better-than-expected first-half performance.
During January, the FTSE 100 Index fell by 0.8%, while the FTSE 250 Index declined by 1.3%. Investor sentiment was affected by renewed lockdown measures introduced in response to the continued spread of the Covid-19 virus, including plans for incoming travellers to enter quarantine on arrival for ten days in Government-provided accommodation. The yield on the FTSE 100 Index eased from 3.70% to 3.69% over the month, while the FTSE 250 Index’s yield fell from 2.32% to 2.30%. In comparison, the yield on the benchmark UK gilt rose from 0.20% to 0.33% over January.
Over January as a whole, the best-performing FTSE industry sectors included industrial transport, food & drug retailing, and industrial metals & chemicals. At the other end of the performance spectrum, the worst performers included oil & gas producers, aerospace & defence, and life insurance.
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