Dividends paid by UK companies fell 44% during 2020, to the lowest annual figure since 2011, according to the Link Group UK Dividend Monitor.
However, Link forecasts a 10% rise in headline dividends, which include special dividends, under a best-case scenario this year as pay-outs recover from March.
Two-thirds of companies cancelled or cut their dividends between the second and fourth quarter and only a quarter of companies raised pay-outs. However, a better-than-expected fourth quarter was boosted by suspended pay-outs being restored, helping 2020 marginally beat Link’s revised best-case forecast.
The financial sector contributed two-fifths of the cuts, mainly owing to Prudential Regulatory Authority prohibition on banking dividends, while oil dividend cuts accounted for another fifth.
However, the classically defensive sectors of healthcare, basic consumer goods, food producers and food retail saw pay-outs flat or only slightly down between the second and final quarter of last year.
“While I would expect some growth in dividends this year, it is likely to be at least 2022 before we start seeing more significant dividend growth,” said David Smith, Portfolio Manager of Henderson High Income Trust. “Having said that, there will be pockets of strong dividend growth within the market this year for the selective investor.”