UK Dividend Monitor Q3 2020 -
Overview
- UK dividends fell 49.1% in Q3 on a headline basis, dropping to £18.0bn, the lowest Q3 total since 2010
- Underlying dividends (which exclude special payments) fell 45.1% to £17.7bn, exactly half way between our best- and worst-case scenario for the quarter
- The decline, though very steep, was less severe than in Q2 and reflects greater clarity for companies over the impact of the crisis on their operations
- Two thirds of companies cut or cancelled their payouts, less than the three quarters that did so in Q2
Steep cuts in Q3, but also signs of hope for income investors
- Cuts totalled £14.5bn in Q3 - banks accounted for almost two fifths, oil companies another fifth, and mining one eighth
- In percentage terms the sectors worst hit were airlines, travel and leisure, general retail, media, housebuilders and discretionary consumer goods and services
- Defensive food retail and basic consumer goods increased payouts
- Some companies began to catch up on missed payouts (eg BAE), others restarted (eg Direct Line) and others signalled restarts in Q4
- One-off specials fell 90% to £299m
Outlook
- The worst is over. Some companies are restarting payouts and there are few further cuts
- Much greater visibility means we have upgraded our worst-case scenario, almost eliminating the gap between it and our best case
- We expect UK dividends (excluding specials) to fall to £60.4bn on a best-case basis and £59.9bn on a worst-case basis, a decline of 38.7% and 39.2% respectively
- The likely outturn for 2020 is exactly mid-way in our original April range
Looking ahead there is huge uncertainty. With the pandemic showing no sign of abating and no vaccine candidates likely to be distributed for at least several months yet, governments are trying to walk the tightrope of using prolonged restrictions to limit healthcare caseloads without destroying even more of the economy and creating even more unintended consequences for health in other ways.
We therefore expect the same dividend trends to persist into the first quarter of 2021, with sharp year-on-year declines. (Remember Q1 2021 faces a tough comparison against a normal Q1 2020). We reach the peak-to-trough decline on the anniversary of the first lockdown at the end of Q1. Thereafter, the comparisons will start to look more favourable and we expect to see the start of a bounce back. Oil dividends will not increase significantly (if at all), so the big question will be whether the Bank of England permits the banks to begin distributing again. Beyond the obvious economic impacts on their trading, the extent to which companies in other sectors have taken government support will influence their freedom to pay shareholders too.
At this early stage we pencil in a best-case increase of 15% for 2021 to £69.6bn (excluding special dividends), back to levels last seen in 2013. Our worst case delivers a 6% increase to a total of £63.5bn, last seen in 2012.
The very interesting and comprehensive Q3 2020 Dividend Monitor report from Link Group can be downloaded in PDF form using the following link -
https://www.linkassetservices.com/documents/link-group-uk-q3-dividend-monitor.pdf
Cheers,
Itsallaguess