UK companies have restored more than £1bn of dividends in recent weeks, underlining that some have fared better during the pandemic than first feared and providing a boost to beleaguered investors.
BAE Systems last week became the latest FTSE 100 company to announce that it would start paying a dividend again, worth about £300m, following packaging group Smurfit Kappa and property company Land Securities.
Other companies in the FTSE 250 and Aim markets — including Nichols, which makes soft drinks such as Vimto — have followed suit.
With another £4.5bn of payouts also maintained by companies, income-focused investors are seeing some support after a bruising few months when more than £33bn was wiped off payouts. Companies sought to protect their balance sheets by cutting costs and suspending dividends as the pandemic worsened in the spring.
Analysis by Peel Hunt suggests about 27 companies that cancelled dividends during the first half of the year are likely to restore payouts later in 2020. In total, about £25bn of dividends are still pending before the end of the year across more than 150 FTSE 350 companies, it said.
Laura Foll, portfolio manager of UK income funds at Janus Henderson Investors, said it had been an “incredibly tough year” for income investors, adding that it was good news that some companies were beginning to reinstate payouts.
“The UK has been one of the worst hit of the developed market in terms of dividend cuts,” she said.
“It is early days but we have seen a number of [companies across different] sectors announce a return, which is encouraging and earlier than I would have expected in some cases.”
Russ Mould, investment director at stockbroker AJ Bell, said the return of FTSE 100 groups such as BAE, Smurfit and Land Securities to the dividend list “offers income-seekers some grounds for hope, as does Rio Tinto’s increased first-half payout”.
But investors “won’t be getting carried away just yet”, he added, pointing to concerns among shareholders about the outlook for BP’s dividend, which he said was the single biggest payer in the UK’s blue-chip index.
Gerrit Smit, head of equity management at Stonehage Fleming, still expects further reductions in payouts.
“The worst of the dividend cuts is over, but it’s not all over,” Mr Smit said. “Covid-19 is accelerating the restructuring of the global economy into a new versus old economy division.
“Those businesses that are stuck in the old economy category and have stretched balance sheets and have not cut dividends yet will have to get to it, or cut even further.”
Ms Foll said that even with the return of some dividends, the year will be “materially worse than the financial crisis” for payouts.
“Even though we are seeing some encouraging signs [of companies restarting their dividend], it will end up being an incredibly tough year [for investors],” she said.
A swift return to big shareholder payouts at many companies was unlikely, she said, pointing out that some sectors, such as banking, were not expected to pay a dividend until next year, while businesses such as Royal Dutch Shell, which slashed its dividend in April, were unlikely to ever return to their pre-pandemic levels.
“In 2021 dividends will recover a bit, but I don’t think we’ll see 2019 levels [of payouts] for several years,” she said.
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