UK dividends fell 44% to £61.9bn ($83.9bn) in 2020, the lowest annual total since 2011 and a harbinger for the market in 2021.
COVID-19-induced market turmoil erased eight years of growth according to the latest UK Dividend Monitor from Link Group.
The total for 2020, however, beat Link Group’s revised best-case forecast for the year by a whisker, thanks to a stronger than expected fourth quarter, which saw a number of companies such as Sainsbury’s (SBRY.L) and Ferguson (FERG.L) restore payouts they had suspended earlier in the year.
For 2021, the resurgent pandemic and renewed lockdown has delayed the recovery in dividends. Link expects 2021 payouts to rise 8.1% on an underlying basis, yielding a total of £66bn on a best-case scenario.
Special dividends could take this to a headline £68.1bn, an increase of 10%. But in a worst-case scenario, payouts could fall again in 2021, dropping 0.6% to £60.7bn on an underlying basis, or £61.5bn including special dividends.
Susan Ring, CEO corporate markets of Link Group said: “UK payouts have been more severely impacted than in most comparable countries because of their heavy concentration in the hands of just a few very large companies, mainly in the oil, mining and banking industries – all sectors that have had to cut dividends steeply.
“There are reasons for optimism, but the resurgent pandemic has pushed back the reopening of the economy even further, especially in the UK. We still believe the worst is past, but a new lockdown means our expectations for 2021 are significantly more subdued.”
COVID-19 cuts started at the beginning of Q2 and reached £39.5bn by the end of the year. Between Q2 and Q4 two thirds of companies cancelled or cut their payouts (47% and 20% respectively), just over a quarter increased them, and the remainder held them steady.
By far the biggest impact came from the financial sector, accounting for two fifths of the COVID-19 cuts between April and December. £16.6bn of dividends were cut or cancelled.
The outright cancellation of banking dividends accounted for four fifths of this. Across the rest of the financial sector payouts fell by a third, slightly better than the wider market.
The next biggest impact was from the oil sector, costing shareholders £8bn in lost income. Having struggled to sustain their very large payouts in recent years, the UK’s oil majors took this opportunity to reset their dividends to more sustainable levels, collectively three fifths lower than before.
They can now grow from this lower level, but since this sector has historically paid the highest dividends, this big reduction largely explains why it will take many years for UK plc dividends to regain previous highs. Shell has already made a small symbolic increase and we do expect further progress over time.
Almost a tenth of the cuts were made by mining companies, whose dividends fell by two fifths. Glencore’s £2.2bn cancellation made the biggest impact. Miners often pay special dividends but these were sharply curtailed too.
Apart from the banks, companies dependent on discretionary consumer spending made the biggest percentage cuts. Altogether, the various consumer discretionary sector payouts fell by £5.5bn, a three quarters decline. In this group, retailers and the airline, leisure and travel sector saw falls of more than 95%.
The classically defensive sectors of healthcare, basic consumer goods, food producers and food retail were true to type in 2020. Their dividends were flat or only slightly down between Q2 and Q4.
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