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Lily James, Carey Mulligan and Ralph Fiennes may be gripping the nation in the Netflix film The Dig, but it is treasure of a different kind that is keeping investors interested in the UK stock market, after a bumper month for dividend payments in February.
Payment declarations came to £14.6 billion, while a further £5.2 billion worth of dividends were restored, against just £2.7 billion of cuts. A further three firms – Hays, Avingtrans and Beazley – also declared their intention to restore dividends shortly, to further boost the income received by investors in the UK stock market.
The aggregate of dividends paid and restored has also now exceeded the value of those cut or cancelled over the past 12 months, to suggest that companies really do feel the worst may be behind us, in terms of the pandemic and the economic downturn.
| UK dividend payments £ million |
UK dividend payments £ million |
UK dividend payments £ million |
UK dividend payments £ million |
|
|---|---|---|---|---|
| CUT | KEPT | RESTORED | Kept + restored | |
| Mar-20 | 15,217 | 1,020 | 0 | 1,020 |
| Apr-20 | 10,967 | 8,423 | 0 | 8,423 |
| May-20 | 5,012 | 3,674 | 0 | 3,674 |
| Jun-20 | 638 | 1,967 | 0 | 1,967 |
| Jul-20 | 5,216 | 6,791 | 1,105 | 7,896 |
| Aug-20 | 4,148 | 3,294 | 1,314 | 4,608 |
| Sep-20 | 1,191 | 582 | 605 | 1,187 |
| Oct-20 | 4,243 | 2,011 | 133 | 2,144 |
| Nov-20 | 776 | 4,793 | 609 | 5,402 |
| Dec-20 | 412 | 240 | 155 | 395 |
| Jan-21 | 27 | 1,141 | 91 | 1,232 |
| Feb-21 | 2,712 | 14,590 | 5,205 | 19,795 |
| 2020 | 47,820 | 32,795 | 3,921 | 36,716 |
| 2021 to date | 2,739 | 15,731 | 5,296 | 21,027 |
| Total | 50,559 | 48,526 | 9,217 | 57,743 |
Source: Company accounts
Share buyback activity picked up, too, putting a little more cash in investors’ pockets. A dozen companies announced new buybacks schemes in February, with a value of almost £1.5 billion – and Berkeley and Rightmove have yet to quantify the amount of stock that they intend to purchase.
While there is no denying that the economic backdrop is a very difficult one, income-seekers have at least passed a key test this month, since BP and Shell paid out dividends that were lower than those of a year ago. That weighed heavily and the oil majors represented more than 90% of February’s total dividend reduction between them, with Evraz the only other FTSE 100 member to prune back its distribution, on a year-on-year basis.
The good news is that Shell cut last April and BP last August, so the base for comparison gets easier for the next quarter or two, before the bar starts to rise once more.
The miners led the charge, with big increases in pay-outs in February at BHP, Anglo American and Rio Tinto. Rio also declared a special dividend.
All of the Big Five banks returned to the dividend list, too. However, only HSBC exceeded expectations with its $0.15-a-share payments and NatWest, Barclays and Standard Chartered all undershot analysts’ forecasts.
As a result, it looks like the miners became the single-biggest dividend paying sector within the FTSE 100 in 2020. Polymetal, Fresnillo and Antofagasta’s dividend declarations for 2020 will have a say but it is the diggers who really are unearthing the treasure now for investors in UK equities, especially as the current surge in raw material and metals prices bodes well for their 2021 payments, too.
| Dividends (£m) 2020E | Dividends (£m) 2021E | % of FTSE 100 total 2020E | % of FTSE 100 total 2021E | Dividend yield (%) 2020E | Dividend yield (% )2021E | |
|---|---|---|---|---|---|---|
| Banks | 3,327 | 7,657 | 5.3% | 10.4% | 2.0% | 4.6% |
| Insurers | 3,850 | 3,958 | 6.2% | 5.4% | 4.2% | 4.3% |
| Other financials | 2,273 | 2,361 | 3.6% | 3.2% | 2.0% | 2.0% |
| Support services | 1,462 | 1,541 | 2.3% | 2.1% | 1.6% | 1.7% |
| Mining | 9,822 | 13,709 | 15.8% | 18.6% | 4.4% | 6.1% |
| Food Producers | 3,859 | 4,361 | 6.2% | 5.9% | 3.2% | 3.6% |
| Food Retailers | 1,255 | 1,111 | 2.0% | 1.5% | 2.3% | 2.1% |
| General Retailers | 249 | 539 | 0.4% | 0.7% | 0.8% | 1.8% |
| Consumer Staples | 8,015 | 8,362 | 12.9% | 11.3% | 5.2% | 5.4% |
| Technology | 420 | 513 | 0.7% | 0.7% | 0.9% | 1.1% |
| Telecoms | 2,163 | 2,955 | 3.5% | 4.0% | 4.5% | 6.2% |
| Travel & Leisure | 46 | 616 | 0.1% | 0.8% | 0.1% | 0.7% |
| Real Estate | 568 | 720 | 0.9% | 1.0% | 2.8% | 3.5% |
| Oil & Gas | 8,597 | 7,432 | 13.8% | 10.1% | 5.5% | 4.7% |
| Pharma / Healthcare | 7,047 | 7,154 | 11.3% | 9.7% | 3.9% | 4.0% |
| Media | 1,321 | 1,711 | 2.1% | 2.3% | 2.3% | 3.0% |
| Utilities | 3,334 | 3,409 | 5.4% | 4.6% | 5.3% | 5.4% |
| Industrials | 2,041 | 2,123 | 3.3% | 2.9% | 2.4% | 2.5% |
| Construction & Mats | 1,323 | 2,161 | 2.1% | 2.9% | 2.2% | 3.6% |
| Personal / Household | 1,315 | 1,387 | 2.1% | 1.9% | 2.5% | 2.7% |
| FTSE 100 | 62,286 | 73,779 | 100.0% | 100.0% | 3.3% | 3.9% |
Source: Company accounts, analysts’ consensus forecasts, Marketscreener, Sharecast
The banks are a key variable and they could yet disappoint, especially if the economic recovery proves to be weak, low interest rates weigh on loan books’ net interest margins, the lenders have to take further substantial provisions or the regulator intervenes once more.
The banks are still expected to be a key driver of dividend growth in the FTSE 100, but if they stumble then the miners might have to take up the slack. These two sectors underpin consensus analysts’ forecasts of a 19% increase in FTSE 100 dividends to £73.8 billion in 2020, enough for a dividend yield of almost 4%, and they above all others must be watched carefully by income seekers this year.
| Percentage of FTSE 100 dividends paid 2020 E | Percentage of FTSE 100 dividends paid 2021 E | Percentage of FTSE 100 dividend growth 2020 E | Percentage of FTSE 100 dividend growth 2021 E | |||
|---|---|---|---|---|---|---|
| Consumer Staples | 21% | 19% | Financials | (20%) | 39% | |
| Financials | 15% | 19% | Mining | (5%) | 34% | |
| Mining | 16% | 19% | Consumer Discretionary | (11%) | 10% | |
| Oil & Gas | 14% | 10% | Industrial goods & services | 8% | 9% | |
| Health Care | 11% | 10% | Consumer Staples | 10% | 8% | |
| Industrial goods & services | 8% | 8% | Telecoms | (5%) | 7% | |
| Consumer Discretionary | 5% | 5% | Real estate | 0% | 1% | |
| Utilities | 5% | 5% | Health Care | (1%) | 1% | |
| Telecoms | 3% | 4% | Technology | 0% | 1% | |
| Real estate | 1% | 1% | Utilities | 1% | 1% | |
| Technology | 1% | 1% | Oil & Gas | (78%) | (10%) |
Source: Company accounts, analysts’ consensus forecasts, Marketscreener, Sharecast
These articles are for information purposes only and are not a personal recommendation or advice.
Written by:
Russ Mould
Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
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