FTSE 100 (^FTSE) dividend payments are forecast to drop by 20% this year due to the COVID-19 outbreak and subsequent recession, it has been revealed.
This percentage represents a total fall of £14.7bn ($29.7bn) to £59.9bn, online investment platform AJ Bell (AJB.L) said.
Some 53 current or former members of the blue-chip index have cut, deferred or cancelled more than £37bn of dividend payments in calendar 2020, particularly in the spring at the start of the pandemic.
These included giants such as Royal Dutch Shell (RDSB.L), HSBC (HSBA.L) and BP (BP.L) during the the course of the year, which came as a huge blow to investors who are aiming to achieve sustainable income and long-term returns.
Shell’s dividend cut was its first since World War Two following the collapse in global oil demand - it announced a 46% fall in first-quarter net income to $2.9bn. Meanwhile, BP halved its shareholder dividend after posting a $6.7bn quarterly loss.
Although a number of UK firms have said they are still paying dividends, the rise in those cancelling, cutting or suspending them this year has resulted in investors making greater use of shorting and leveraged investment strategies with a view to boosting returns.
Each quarter AJ Bell takes the forecasts for the FTSE 100 companies from all the leading city analysts and aggregates them to provide the dividend outlook for each company.
Russ Mould, investment director at AJ Bell, said: “There is no doubt that 2020 has been tough on income seekers.
“Yet the news flow is starting to improve. Fifteen FTSE 100 firms have either returned or declared their intention to return to the dividend list for fiscal 2020.”
Last week, Britain’s banks were given the green light to restart payouts to shareholders, although the size of dividends and buybacks has been capped for now.
The Bank of England said in a statement late on Thursday that it had decided banks could resume dividends and other capital distributions after assessing the strength of the sector. Payouts were banned in March amid concerns that banks could run low of capital as the COVID-19 crisis battered the economy.
The Prudential Regulation Authority — the organisation within the Bank of England responsible for oversight of the sector — said it had undertaken two recent stress tests and concluded banks “remain well capitalised and able to support the economy.”
However, payouts will be limited. The PRA is putting in place “guardrails” to prevent excessive payouts, given the ongoing impact of COVID-19 and the uncertainty around Brexit.
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