Dividend boost forecast for 2021 as Q1 decline eases

UK dividends fell at their slowest rate since the pandemic began during the first quarter, according to the latest UK Dividend Monitor from Link Group, with underlying payments falling by just over a quarter to £12.7 billion.

Around half of UK companies either increased, restarted or held their dividends steady during the first three months of the year, compared with just one-third in Q4 2020.

The biggest positive contribution in Q1 came from the full restoration of housebuilder Persimmon’s interim payout, worth £398 million, along with an extra interim dividend from Aviva to help catch up for lost ground in 2020.

Of the £5.8 billion of first quarter cuts, the oil sector made up almost half. Other large reductions came from BT, Compass and Easyjet.

For the full year, Link expects headline dividends to shoot up 17% to £74.9 billion, thanks to the enormous Tesco one-off in Q1 as well as special dividends from “bumper mining profits” from companies including BHP and Rio Tinto. Banking dividends are returning, though at low levels.

Link’s worst-case scenario has also been upgraded thanks to greater visibility. Instead of a 0.6% decline, it predicts dividends should rise no less than 0.9% this year on an underlying basis.

“After the year-long pandemic winter for dividends, the buds of spring are about to burst into bloom. It’s hard to characterise the big drop in the first quarter as anything but bad news, but look closer and the green shoots are already sprouting,” said Ian Stokes, managing director of corporate markets EMEA, part of Link Group.

“There are some big changes coming in the second quarter,” he added. “During the pandemic, many companies that had been over-distributing permanently reset their dividends to more sustainable levels. Most of these now hope to grow their dividends from this lower base. For others the effect of the cuts is more transitory so they will bounce back quickly.”