2020 has been a nightmare year for investors seeking big dividends from UK shares. Shareholder payouts have been slashed left, right and centre as companies have scrambled to protect their balance sheets. A great many UK shares decided to stop paying dividends altogether following the onset of Covid-19.
More than half of FTSE 100 companies alone have either reduced, ceased, or postponed dividends in 2020. But recent data suggests the environment is finally beginning to improve for UK share investors.
Dividends from UK shares are improving
According to Link Group, dividends paid by UK shares almost halved during the third quarter on a headline basis, to £18bn. The 49.1% fall meant total dividends came in at their lowest for any third quarter since 2010.
But, encouragingly, the tide is beginning to turn. Link Group says that two-thirds of UK shares either cut or cancelled dividends during the last quarter. This compares with around 75% who took similar action during quarter two.
The data led Susan Ring, chief executive of Corporate Markets at Link Group, to comment: “UK plc is not out of the woods, but the trees are perhaps thinning a bit… 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.”
Ring expects further hefty year-on-year declines in total dividends paid in the final quarter of 2020 and the first quarter of 2021. However, she expects the rebound to begin from next April, the anniversary of mass global lockdowns following the Covid-19 outbreak.
Dividends to rebound in 2021?
The improvement in the dividend performance of UK shares during the third quarter led Link Group to again reduce its worst-case scenario for 2020. It now expects total annual dividends to fall between 38.7% and 39.2% year on year.
And next year, the financial data giant reckons annual dividends will rise between 6% and 15% from this year’s levels.
The improved dividend landscape is, of course, hugely encouraging. But it’s clear UK investors need to remain cautious before buying shares in the hope of big dividends. We remain in the depths of a pandemic and lockdown barriers are being put back up all over the world. The outlook for the global economy, and as a consequence for UK plc profits, remains highly uncertain.
Still, there are plenty of UK shares dividend hunters can rely on. For example, you and I can invest in traditionally-defensive stocks whose earnings remain robust during economic upturns and downturns. Such companies include defence contractors, general insurance providers, utilities and telecoms providers, to name just a handful. And, with the help of The Motley Fool and its huge library of special reports, you can find even more rock-solid UK shares that should pay big dividends, whatever happens to the global economy.