Meteor Asset Management Limited | UK Dividend Outlook

According to research from Link Dividend Monitor, dividends in the third quarter of 2020, for UK companies, were at their lowest for ten years. Payouts were almost half of what they were over the same period in 2019. The data suggests the best-case scenario for the full year will result in a fall of 44.6% and worst-case, a fall of 45.1%.

Although it was suggested that “the worst is now behind us”, the ongoing uncertainty is likely to affect dividends through Q4 and Q1 2021 with the beginning of a “bounce-back” not to be seen until April onwards.

On a more positive note, the firm also said that “as companies become better able to assess the impact of the pandemic and the associated restrictions on their operations, some are restarting dividends and a handful are even making up some of the lost ground”.

A similar analysis can be ascertained through looking at FTSE 100 dividend futures indices. The below chart reflects how FTSE 100 dividend payouts, in index points, have changed over the last five years. Up until lockdown measures were introduced at the start of the year, dividends were on an upward trajectory in line with equities in general. Companies quickly reeled in payouts in March and although there has been a mild recovery, the latest data still only suggests around 210 points worth of dividends. The FTSE 100, as of mid-October, sits at around 5800 which makes an approximate dividend yield of 3.6%.

From a structured products perspective, dividends impact the potential returns that can be offered. In general, and with all else being equal, the higher the dividends, the greater the potential returns that can be achieved on conditional capital-at-risk structures such as those we offer in our Current Products today.

Looking forward, the expectation is that UK equities are on the road to recovery – but the road could be long. The two big elephants in the room are, of course, coronavirus and Brexit. But the UK has some of the most resilient companies in the world and as the data above suggests, this could be a growth opportunity. Many of the cuts that firms have made are likely to have been precautionary. If progress can be made on a vaccine rollout and if the trade picture becomes clearer post-Brexit, there could be a lot of firms waiting to reward patient investors.

Sources:
“UK dividends down 49% on last year”, FT Adviser, 21/10/2020

“UK dividends suffer 49% fall in Q3 – Link”, Investment Week, 21/10/2020

Bloomberg, 21/10/2020

Meteor Insights

UK Dividend Outlook

According to research from Link Dividend Monitor, dividends in the third quarter of 2020, for UK companies, were at their lowest for ten years

Posted: 21 October 2020

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