Dividends fall by over 50%

Dividends paid by UK companies dropped dramatically in the second quarter of the year.

The impact of the Covid-19 pandemic on dividend payments has been highlighted by recent research from Link Asset Services, one of the leading UK company registrars. It looked at the dividend payments from UK listed companies in the second quarter of the year and found that:

  • Total dividend payments, both regular and one-off special payments, fell by 57.2% compared with the same quarter in 2019. If special dividends are excluded – and there were very few – regular dividend payments fell by 50.2%.
  • 176 companies cancelled their dividends and 30 more cut them. In total that represented three quarters of the payers in an ‘ordinary’ second quarter.
  • Among the 100 largest companies, dividend pay outs fell by 45%, but in the next tranche of more UK-focused ‘mid-cap’ companies, the drop was 76%.

To some degree, the second quarter of 2020 represented the perfect storm. This is when the big banks (Barclays, HSBC, Lloyds, NatWest (formerly RBS) and Standard & Chartered) usually pay their final dividends. This year, none of them made a payment, following direction from the Bank of England on preserving capital. Those five alone accounted for half of the decline in regular dividends over the quarter. April to June was also the period in which the dramatic dividend cut from Royal Dutch Shell took effect. For each of the last five years from 2015 to 2019, Shell has been the company which has paid out the largest amount in dividends, but its June 2020 quarterly dividend payment was around one third that of March.

Looking ahead to the rest of the year, Link predicts that, at best, the drop in total annual dividend payments will be 39% for regular dividends and 45% for all dividends; the worst case scenarios are 43% and 49% respectively. For 2021, the report suggests that there could be a rebound of ‘as much as 29%’ in dividends.

Inevitably the dividend cuts will work their way through to the payments made by UK equity income funds. Some will be harder hit than others, particularly those that relied on banks to boost portfolio income. The income funds for the ‘new normal’ are likely to look different from their predecessors. For our view of the income funds to consider now, please contact us.

The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

3rd September 2020