2020 was always going to prove a difficult time for dividend investors. A slowing global economy meant the hunt for companies still turbocharging shareholder payouts was becoming increasingly challenging. No one could have anticipated the earthquake of the Covid-19 outbreak and its impact on investors’ income flows though.
As of today, approximately half of the FTSE 100 have either stopped, suspended, or reduced their dividends. Some are wielding the axe in anticipation of an earnings slump and a balance sheet shock. Other, more stable stocks are mothballing their dividend policies and saving cash in case things do go sideways.
Dividend income slumps
Recent poll data from AJ Bell shows how this is having a devastating impact on shareholder returns. Half of respondents to its survey said their investment income has taken a whack of late.
On average, investors said they’d seen their income fall by more than quarter (27%), though some have endured even larger declines. Around 40% of respondents said their income has fallen by 30% or more. And one in five of those questioned said their investment income has dropped by half or even more.
The big worry is that the dividend cuts might not be over, either. As AJ Bell noted: “While some investors might be hoping the end is in sight for these cuts, they could actually increase now the government has bought in stricter measures banning firms using its loan scheme from paying out dividends to investors.”
A second wave of the coronavirus pandemic would certainly lead to more companies scything down dividends. But even without an escalation in Covid-19 infection rates, tough macroeconomic conditions over the next couple of years will cause more firms to reduce or stop shareholder payouts.
The best UK shares for Footsie investors?
It’s clearly time for income investors to be more careful with how they invest their money then. Fortunately there are plenty of shares in the FTSE 100 alone that have pledged to keep paying dividends in the coming year. And while Covid-19-related developments could cause some to renege on their pledge, there are many who should remain committed.
I’m tipping Unilever and Diageo — two blue-chips I own — to continue paying dividends in 2020 at least. Both can rely on the terrific brand power of their products to keep the revenues flowing in, irrespective of broader pressure on consumer spending. Incidentally, these Footsie shares yield an inflation-beating 3.5% and 2.5% respectively for this year.
Admiral is receiving floods of travel claims right now. But its defensive operations — it’s clearly a major player in the car insurance market — provides it with supreme earnings visibility that should allow it to meet its pledge to keep on paying dividends. It also has exceptional balance sheet strength like Diageo and Unilever. Yields here sit just shy of 6%.
I’d also be tempted to buy power supplier SSE and telecoms play Vodafone for all of these reasons. Their forward dividend yields sit closer to 6.5%. It’s clear, then, that with a little care and some sound research, investors should still be able to receive solid income flows from their shares portfolios.