Dividend payouts from UK quoted companies fell by 44 percent to £61.9 billion in 2020 - a level not seen since 2011. Chaos caused by coronavirus devastated dividends through the year as companies barricaded their finances against the uncertainty. But while payouts for 2021 are hard to predict, some companies do look set to ratchet up their returns to shareholders this year.
The final data on 2020 dividend payouts makes for pretty grim reading. Analysis by Link Asset Services shows that Covid-19 was responsible for £39.5 billion of cuts during the year. Two-thirds of companies cancelled or cut their payouts between the second and fourth quarter - when the full force of the pandemic was being felt.
Among the worst hit sectors was financials, where the Bank of England intervened to put a halt to payouts early in the crisis. That contributed two-fifths of the overall decline. Oil stocks were also badly affected, with the sector contributing another fifth to the total cut.
In terms of company size, large-cap dividends fared better than those of the mid-caps, with cuts coming in at 35 percent and 56 percent respectively. For the year ahead, Link Asset Services’ best-case scenario sees an increase in the overall dividend payout of 8.1 percent. In a worst-case scenario, the overall payout will fall again by 0.6 percent. It reckons that it’ll take until 2025 for payouts to regain their previous highs.
For income investors, the landscape is challenging. Most of the dividend screens tracked by Stockopedia have been under pressure over the past year. Only the Geraldine Weiss Lite Screen and the Dividend Achievers Screen held portfolios of stocks that, overall, have managed positive capital returns over 12 months.
The more interesting of these is the Dividend Achievers Screen because it contains a fuller number of current contenders. Here’s the 2-year performance chart:
Dividend Achievers was actually quite consistent last year and exposure to a number of smaller-cap shares seems to have been an advantage. Importantly, this is not a high yield strategy. Rather it’s a screen that looks for strong earnings growth that’s translating into consistent dividend growth over multiple years - as an indicator of solid businesses. That’s reflected in some of the higher quality names that are among those currently passing:
