Dividend recovery ‘could take six years’ after record-breaking fall
Shareholder payouts could take up to six years to recover to pre-coronavirus pandemic levels, the latest research has shown, after companies were forced to slash dividends during the crisis.
Dividends were down £22bn to £16.1bn in the second quarter of the year, a record fall of 57.2 per cent year on year.
Underlying dividends, excluding special dividends, fell by £16.4bn, with half of the impact coming from the financial sector after the Bank of England ordered lenders to cancel all shareholder payouts for 2020. Many insurers also followed suit.
Oil sector cuts totalled £2.2bn during the second quarter, with Shell slashing its payout by two-thirds, followed by a £2bn cull from the diverse industrials sector, including aviation, construction and engineering.
Meanwhile, £1.7bn was pulled from consumer discretionary sector dividends.
In total 176 companies cancelled payments and 30 cut them, representing three quarters of firms that usually pay out during the period, according to analysis by Link Group, which warned it could take until 2026 for payouts to return to 2019 levels.
Over the next twelve months Link Group said it expects UK equities to yield 3.6 per cent on a best-case scenario or 3.3 per cent on a worst-case scenario.
Susan Ring, corporate markets chief executive at Link Group said: “The second quarter was truly a record breaker. Not by a whisker, nor by a nose, but by a mile. The whole of 2020 will, without doubt, see the biggest hit to dividends in generations.”
“But to some extent, companies in 2020 are also ensuring they don’t waste a good crisis,” she added.
“Dividend cover, a measure of affordability that relates payouts to profits, has been far lower in the UK than the global average.
“2020 has provided an opportunity for many companies to reset their dividends at a lower, more sustainable level from which they can again start to rebuild.
“In the short term this is painful for investors, but in the long run it helps create healthier companies.
“This resetting, together with the economic legacy of the pandemic, means it could take until 2026 for dividends to return to their 2019 level.”