One of the most painful aspects of this year’s market crash is how so many FTSE 100 stocks have cut or suspended their dividends. I’m a huge fan of shareholder payouts, which can generate more than half of your long-term returns, if reinvested for growth. Seeing so many disappear has been a real blow, but all is not lost.
Dividends are back! Okay, not all of them, but a steady number of FTSE 100 companies are reviving their shareholder payouts, as the country eases out of lockdown. Insurance company Aviva is a notable one. It announced earlier this month that it plans to review its payout in Q4. That will be a major boost because its yield has been the biggest reason to hold its stock lately.
Direct Line Insurance Group has also restored its payout. In fact, it’s gone one better, increasing its interim dividend from 7.2p per share to 7.4p. BAE Systems also restored its dividend, as it expects the defence sector to rebound in the second half of 2020. It is paying 13.8p deferred from April, plus an interim dividend of 9.4p.
I like these FTSE 100 stocks
Packaging groups Smurfit Kappa and Mondi have both restored dividends, even though first-half profits fell 13% and 26% respectively in the six months to 30 June.
Housebuilder Persimmon has now joined the dividend revival party, after reporting a 49% year-on-year rise in sales per site since the start of July. It may only be paying 40p per share, against 125p originally anticipated, but it is a step in the right direction.
In total, 31 FTSE 100 stocks cut their dividends in the first half of this year, according to research from wealth platform AJ Bell. That hurts. At the same time, some 26 have either maintained or increased their dividend.
The balance is gradually swinging back in favour of FTSE 100 dividend stocks. In total, around £1bn worth of dividends have been restored. Hopefully more will follow. This suggests we may now be over the worst of the slump, and investors can look to a brighter future.
I’d buy UK dividend shares
One of the joys of investing in UK shares is that they offer such high yields, typically double the return you get on, say, the US S&P 500. You still get a decent level of income despite the market meltdown, around 2.5% a year right now, and that is set to rise.
Plenty of top FTSE 100 stocks have continued to pay their dividends throughout the pandemic. Global miner Rio Tinto, British American Tobacco, and spirits giant Diageo will pay more than £1bn to investors this year.
GlaxoSmithKline, AstraZeneca, Unilever, Reckitt Benckiser Group, Legal & General Group, RELX, and Phoenix Group Holdings have also retained their dividends. Together, these are the top 10 dividend stocks on the FTSE 100. It is no coincidence that they are among my favourites on the index today.
A healthy dividend is usually a sign of healthy company. Fingers crossed we’ll see more of them.