UK share prices continued to improve during March as investors drew encouragement from the continued successful rollout of the Covid-19 vaccination programme across the country, alongside a drop in infection rates.
- One in five companies cut its dividend globally in 2020
- One in eight companies cancelled its payout altogether
- UK equity income funds remained out of favour
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UK share prices continued to improve during March as investors drew encouragement from the continued successful rollout of the Covid-19 vaccination programme across the country, alongside a drop in infection rates. Over March as a whole, the FTSE 100 Index rose by 3.6%, while the FTSE 250 Index climbed by 2.9%.
“Special dividends are expected to be a feature during 2021”
In the quarterly reshuffle of FTSE UK index constituents, supermarket chain Morrisons and water company Pennon Group were relegated from the FTSE 100 Index to the FTSE 250 Index, to be replaced by engineering companies Weir Group and Renishaw. During the month, distribution company Bunzl announced a 5.5% increase to its dividend payout alongside strong results, and housebuilder Bellway reinstated its dividend payment.
The yield on the FTSE 100 Index declined from 3.37% to 3.31% during March, while the FTSE 250 Index’s yield eased from 1.99% to 1.98%. In comparison, the yield on the benchmark UK gilt remained broadly unchanged at 0.84%.
Global dividends fell at a headline rate of 12.2% and an underlying rate of 10.5% during 2020, according to Janus Henderson’s Global Dividend Index. One in five companies cut its dividend during the year, while one in eight cancelled its payout altogether. Looking ahead, Janus Henderson estimates that dividends could fall at a headline rate of 2% in its worst-case scenario; its best-case scenario sees payouts rising by a headline 5%. Special dividends are expected to be a feature during 2021 as companies harness their strong cash positions to make up some of the decline in 2020’s distributions. Elsewhere, having accounted for a third of global dividend cuts by value in 2020 as regulators curtailed payouts and buyback activity, banks are likely to return to the fore in 2021, although banking dividends in the UK and Europe are unlikely to recover to 2019 levels this year.
The UK economy contracted by 2.9% during January as lockdown took effect. The economy is 9% smaller than it was in February 2020, compared with 4% below in October 2020.
UK equity funds remained firmly out of favour during February, according to the Investment Association (IA) , and both the UK Equity Income sector and the mainstream UK All Companies sector experienced sizeable outflows. In contrast, demand rose for funds in the UK Smaller Companies sector, which enjoyed net retail inflows of £142.5 million during the month.
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