UK share prices continued to fall during July as investors’ worries about the possibility of another wave of coronavirus infection were exacerbated by localised spikes in Leicester and the north-west of England, alongside surges in the US, Spain, and Australia.
- 176 listed UK companies cancelled their dividends in Q2
- Companies continued to cut or cancel into Q3
- Gilt yields continued to fall
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UK share prices continued to fall during July as investors’ worries about the possibility of another wave of coronavirus infection were exacerbated by localised spikes in Leicester and the north-west of England, alongside surges in the US, Spain, and Australia.
“UK dividends suffered their worst-ever quarterly drop during the second quarter of 2020”
Retail sales rose by 3.4% during June, according to a survey undertaken by the British Retail Consortium (BRC) and KPMG, posting their first monthly increase since lockdown, and their strongest monthly performance since May 2018. Nevertheless, retailer and FTSE 100 constituent JD Sports announced that it will not pay a final dividend, warning that many consumers remain too nervous to visit shopping centres. Elsewhere, having previously cancelled its interim payout, packaging company DS Smith scrapped its full-year dividend, citing “unprecedented uncertainty”.
UK dividends suffered their worst-ever quarterly drop during the second quarter of 2020, according to Link Asset Services’ Dividend Monitor. A total of £16.1 billion was paid out, representing an annualised decline of 57.2% compared with the same period of 2019. 176 companies cancelled their dividends during the second quarter, with a further 30 firms cutting their payouts as companies hastened to shore up their balance sheets. Link commented: “The whole of 2020 will, without doubt, see the biggest hit to dividends in generations”. Under Link’s “best case” scenario, UK dividends are set to fall by 39% this year to £60.5 billion, and it could be 2026 before they return to pre-Covid levels. On a brighter note, Link believes that the crisis could provide companies with “an opportunity to reset their dividends at a “lower, more sustainable level” that, in the longer term, could result in healthier businesses.
The FTSE 100 Index fell by 4.4% during July, while the FTSE 250 Index declined by 1.5%. Since the beginning of the year, the best-performing FTSE industry sectors were leisure goods, technology hardware & equipment, pharmaceuticals and biotechnology, and electronic & electrical equipment. In contrast, the worst-performing sectors included oil & gas, banks, travel and leisure, and aerospace & defence.
The yield on the FTSE 100 Index rose from 4.81% to 5.03% in July, while the FTSE 250 Index’s yield eased from 3.88% to 3.83% over the month. In comparison, the yield on the benchmark UK gilt fell from 0.17% at the end of June to 0.11% at the end of July.
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