UK dividends are unlikely to match their pre-Covid highs until 2025 at the very least and pay-outs could fall for a second consecutive year, Link Fund Solutions has warned, as climbing coronavirus cases and renewed lockdown measures paint a bleaker picture for the year ahead.
UK plc dividends stood at £61.9bn at the end of 2020, according to the firm's latest Dividend Monitor ' down 44% from 2019 and the lowest annual total since 2011. Between Q2 and Q4, two-thirds of companies cancelled or cut £39.5bn worth of dividends compared with a quarter of businesses that increased pay-outs. The remainder held dividends steady. Though Link said the worst of the Covid-induced dividend cuts were over, the resurgent pandemic and renewed lockdown mean the outlook for 2021 is significantly more subdued.
In its best-case scenario, pay-outs would rise by 8.1% to £66bn on an underlying basis this year, with special dividends taking the headline figure up 10% to £68.1bn. But in its worst-case scenario, pay-outs would fall for a second year in a row to £60.7bn, or £61.5bn including special dividends. This means UK stocks would be yielding between 2.8% and 3.1% this year.
Despite Link's bleak projections, some UK equity income managers have remained more optimistic about the prospects for dividend growth this year. Simon Young, manager on the Axa Framlington UK Equity Income fund, is forecasting dividend growth of 5% to 10% in 2021, off expectations the vaccine roll-out will boost the chances of an earnings recovery.
About the Author: Glen Callow
