Gam UK equity income manager Adrian Gosden thinks the UK is “past the worst” of Covid-induced dividend cuts as data shows shareholder payouts have slumped to their lowest quarterly total in a decade.
According to Link Group’s latest quarterly figures, dividends dropped by 49.1% in the three months to the end of September to £18bn. But this represented an improvement on Q2 when dividends fell by 57.2%.
Two thirds of companies cut or cancelled payouts in Q3 compared with three quarters in Q2. Cuts in Q3 totalled £14.5bn.
But Gam UK Equity Income fund manager Gosden (pictured) said “we are past the worst” in terms of dividend cuts in the UK.
“It has been horrible but conversations we have had with our companies, suggest the dividends are on the way,” he said. “Indeed, within our portfolio, Devro, Warpaint and Close Brothers have all started paying the dividends again.”
UK banks, oil giants and miners dominate dividend cutters
Link’s data showed banks accounted for two fifths of the cuts as they remain barred from paying out to shareholders by the Bank of England. The oil sector contributed another fifth and mining one eighth, though gold miners bucked the trend by paying sharp increases.
Gosden said the most important return to the dividend list will be the banks. Lloyds Banking Group and One Savings Bank are both in the £158m fund’s top 10 holdings.
“Clearly the regulator is in charge here,” he said. “However, recent comments from the chairman of Standard Chartered suggest they are ready to start returns to shareholders. The Q3 reporting season will be interesting to see what the UK listed banks say on dividends.”
Barclays is set to be the first of the big five FTSE 100 banks to report Q3 results on Friday.
Link also found the travel and retail industries saw payouts fall 96% year-on-year in Q3. Dividends in the media and housebuilding and consumer goods and services sectors were down by two thirds during the quarter.
Dividends from the top 100 payers fell by less than small- and mid-cap companies in the third quarter. Excluding special dividends, payouts from the top 100 fell by 42.9%, from mid-caps by 60.4% and from smaller companies by 69.5%.
Payouts next year to return to levels at 2012
Link said the picture “brightened a little” in Q3 but only in context of record falls experienced so far in 2020 as a result of the Covid pandemic.
“Though by any normal standards a fall of this magnitude is terrible for investors, it is significantly better than the 57.2% drop in the second quarter,” a press release said.
Link has predicted the overall decline in UK dividends for 2020 to be between 44.6% and 45.2%, yielding £61.2bn or £60.6bn respectively.
It is more optimistic for 2021, forecasting a best-case increase of 15% and a worst case of 6%, taking payouts back to levels last seen in 2012 and 2013.
Link Group chief executive corporate markets Susan Ring said: “UK plc is not out of the woods, but the trees are perhaps thinning a bit. Our worst-case scenario has steadily improved all year and though UK investors face a historic decline in their income this year, the worst is now behind us.”
But she said looking ahead there is still huge uncertainty.
“With the pandemic showing no sign of abating and no hoped-for vaccines likely to be distributed for at least several months yet, governments are trying to walk the tightrope of using prolonged restrictions to limit healthcare caseloads without destroying even more of the economy and creating even more unintended consequences for health in other ways.”
