UK Share Dividends

One aspect of the Coronavirus crisis has been that many UK companies have suffered cash flow problems as both the UK and Global economies have gone into lockdown. The consequences for UK dividends have been swift and severe.  Here are some of the main highlights:

• 45% of UK companies have already scrapped dividend payments
• £25.4bn of cuts are sure to hit this year, equivalent to one third of the April to December total
• A further £23.9bn are at risk, but £31bn are likely to be safe
• Several companies may defer the half year dividend to maintain enough cash to allow them to pay something at the full year end
• Companies that have received government assistance will be bound by some restrictions on share buybacks and dividends
• UK banks and other financial institutions have been instructed by the BoE not to undertake share buybacks or pay dividends to preserve regulatory capital
• Companies will need to restore their balance sheets before they can pay at anything like the 2019 levels
• UK Equity Income Funds will undoubtedly be reducing pay outs and this situation will only recover slowly after the economy returns to some sort of normality

Covid-19 Impact by Sector

• Biggest impact comes from banks, slashing by £13.6bn
• The big mining sector is seeing a mixed impact
• Likelihood of cuts from the oil giants is hotly disputed in the market
• Classic defensive dividends are more likely to be safe – e.g. food retail, food, drink & tobacco, basic consumer good and healthcare

Summary

• It will be sometime before the economy is back on its feet and we don’t know how fast or how well companies will be able to restore their balance sheets
• Companies and funds that are able to maintain a decent dividend pay-out rate will be valued accordingly
• 2021 should see a recovery in dividend pay-outs but nothing is certain
• We are reviewing all the equity income funds that we hold as we need to make certain that the managers are invested in sectors an companies that will still be able to pay dividends

Source: Link Asset Services Dividend Monitor Q1 2020