2020 was a calamity for legions of income-hungry UK share investors. Hundreds of companies from the FTSE 100 and below cut, cancelled or postponed dividends last year as Covid-19 spread around the world. As profits forecasts came crashing down and balance sheets buckled, companies went into full cash-conservation mode.
Things have started to look up more recently, happily. The successful development of coronavirus vaccines last autumn, followed by successful rollouts in many parts of the globe, has improved the outlook for plenty of UK shares and prompted numerous companies to set to work repairing their dividend policies.
Fresh research today illustrates the improving landscape for UK dividend share investors too.
On the mend
At first glance, data from Link Group might not suggest there’s much to celebrate. This showed underlying dividends from UK shares fell 26.7% year-on-year in the first quarter to £12.7bn.
However, Link Group points out that this was the weakest quarterly drop since the middle of last year. The financial services giant commented that “since the 48.2% collapse in payouts in quarter two of 2020, the first quarter to feel the effects of the pandemic, each successive quarter has seen a slower decline.”
Link Group added that “in a sign that recovery is on the way, half of UK companies either increased, restarted or held their dividends steady in quarter one.” This compares with just one-third of UK shares that took this sort of action in the previous three months.
Special dividends soar
Link Group says that total dividend cuts in the first quarter clocked in at £5.8bn. It says that half of these reductions emanated from the oil sector. Though it added that sizeable cuts from BT, Compass, Associated British Foods and easyJet also contributed to the fall.
While underlying dividends fell around 27% in the first quarter of 2020 they actually rose on a headline basis. Using this classification — one which includes the impact of special dividends — shareholder payouts actually increased 7.9% year-on-year. These registered at a fatty £6.1bn for the entire quarter.
Link Group says that this was “thanks to the second-highest one-off specials on record”. This was driven largely by Tesco distributing the proceeds of Asian asset disposals to its shareholders in March, it said.
Dividends from UK shares to rebound
So what does Link Group expect UK shares to pay in total in 2021? Well, following those first-quarter numbers the financial giant predicts that full-year underlying dividends will rise 5.6% year-on-year, to £66.4bn. This is less than the 8.1% increase Link Group had pencilled in back in January.
In cheerier news, however, the organisation reckons that annual dividends this year will rise by at least 0.9% from 2020 levels. This is better than the 0.6% decline that Link Group indicated under its worst-case scenario three months ago.
On a headline basis Link Group thinks that total dividends from UK shares will soar 17.2% in 2021 to £74.9bn.