FTSE 100 dividends forecast to grow by £10.9 billion in 2021

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There is no doubt that 2020 has been tough on income seekers. In total, 53 current or former members of the FTSE 100 index have cut, deferred or cancelled over £37 billion of dividend payments in calendar 2020 thanks to the covid-19 outbreak and subsequent recession.

Yet the news flow is starting to improve. Fifteen FTSE 100 firms have either returned or declared their intention to return to the dividend list for fiscal 2020. A sixteenth – BT – has outlined plans to pay a dividend in 2021. The total dividend payments made or announced by those sixteen add up to £2.7 billion with four yet to finalise the actual figure. That £2.7 billion figure is still dwarfed by the value of the cuts announced in calendar 2020 but it nevertheless underpins the improved momentum in overall FTSE 100 dividend forecasts.

16 FTSE 100 firms have confirmed plans to restore dividends

FTSE 100 dividend restorers / Company FTSE 100 dividend restorers / £ million
BAE Systems 746
Ferguson 360
Smurfit Kappa 236
Aviva 236
Sainsbury 234
Mondi 214
Smiths Group 139
Persimmon 128
WPP 123
Land Securities 111
British Land 78
Bunzl 53
BT* TBC
Rentokil Initial TBC
DS Smith TBC
Taylor Wimpey TBC
Total 2,656

Source: Company accounts. *BT plans to resume payments in 2021.

Ten firms are expected to generate over half of the FTSE 100 dividend payout

Just ten stocks are forecast to pay dividends worth £32.3 billion, or 54% of the forecast total for 2020. The top 20 are expected to generate 75% of the total index’s pay-out, at £44.8 billion.

After dividend cuts or cancellations from Shell, HSBC and BP during the course of the year, British American Tobacco is now forecast to be the biggest dividend payer in the FTSE 100 in 2020.

Not all investors will welcome this, especially those who feel that tobacco does not pass their Environment, Social & Governance (ESG) screen tests. However, others will welcome how BAT’s chief executive Jack Bowles continues to stick to his target of a 65% dividend pay-out ratio. The company’s interim results offer support to earnings forecasts too, in the absence if changes to sales and earnings guidance for both 2020 and the medium-term.

What also catches the eye in the list of biggest payers is how Imperial Brands still offers a yield of more than 9%, with earnings cover of almost two times, even after its cut in 2020. This may reflect investor scepticism that the dividend is truly safe over the long-term, amid wider regulatory pushback against smoking. BP and BAT offer yields of nearly 8%, the former as investors ponder whether even this is affordable as the oil major looks to reinvent itself and the latter as it faces the same challenges as Imperial.

The 20 firms forecast to be the largest dividend payers for 2020

  Dividend (£ m) / 2020E Yield (%) / 2020E Earnings cover (x) / 2020E Cut in last decade?
British American Tobacco 4,948 7.9% 1.53x No
BP 4,420 7.9% (0.69x) 2010, 2020
Royal Dutch Shell 4,177 3.9% 0.95x No
Rio Tinto 4,032 5.9% 1.56x 2016
GlaxoSmithKline 4,014 5.8% 1.45x No
Unilever 3,859 3.4% 1.50x No
AstraZeneca 2,760 2.6% 1.50x No
Vodafone 2,163 6.2% 0.83x 2018
BHP Group 1,888 4.6% 1.49x 2016
National Grid 1,742 5.8% 1.06x No
Diageo 1,598 2.3% 1.60x No
HSBC 1,318 1.5% 3.31x 2019, 2020
Imperial Brands 1,303 9.4% 1.85x 2020
Reckitt Benckiser 1,240 2.7% 1.88x No
Legal and General 1,048 6.7% 1.64x No
Aviva 956 7.2% 2.07x 2012, 2013, 2019
Anglo American 912 2.6% 2.43x 2015, 2016, 2020
SSE 847 5.9% 1.00x 2019
RELX 841 2.5% 1.76x No
Tesco 768 3.5% 1.72x 2014, 2015

Source: Company accounts, Sharecast, analysts’ consensus forecasts, Refinitiv data

Outlook for dividends in 2021 is more positive

In total, FTSE 100 dividend payments are now forecast to drop by 20%, or £14.7 billion, in 2020 before an 18%, or £10.9 billion, rebound in 2021.

That puts the FTSE 100 on an expected dividend yield of 3.2% for 2020 and 3.8% for 2021 as dividend forecasts find a floor. It is the latter number which may be more relevant as investors, encouraged by the development and imminent roll-out of several vaccines for covid-19, attempt to look beyond the pandemic and to a possible recovery in global economic activity from next year onwards.

As a reflection of this gathering optimism, dividend forecasts for the year have increased by 6% in the fourth quarter to £59.9 billion from £56.6 billion in September. Although this is a long way down from the £91.1 billion forecast of a year ago and dividend payments are now expected to fall for two consecutive years before starting to recover in 2021.

Source: Company accounts, Sharecast, analysts’ consensus dividend forecasts

Investors will be particularly pleased by the Prudential Regulatory Authority’s decision to permit banks to start paying dividends again, as the big lenders are forecast to generate the lion’s share of the overall FTSE 100 dividend in 2021. Just ten firms in total are expected by analysts, at this stage, to provide three-quarters of 2021’s aggregate payment increase.

Ten biggest forecast dividend increases in 2021

  Dividend increase (£ million) / 2021 E Dividend increase (% FTSE total) / 2021 E
HSBC 3,308 30.4%
Lloyds 850 7.8%
Glencore 747 6.9%
BT 747 6.9%
Barclays 555 5.1%
NatWest Group 449 4.1%
BHP Group 448 4.1%
Anglo American 374 3.4%
Associated British Foods 305 2.8%
Persimmon 301 2.8%

Source: Company accounts, Sharecast, consensus analysts’ forecasts

The ten firms forecast to have the highest yields in 2020 & 2021

Investors will have to look carefully at the list of the highest-yielding firms, as some of them have a track record of having to cut their dividend payments when times get tough.

At the time of writing, relative market newcomer M&G is the highest-yielding individual stock, with Imperial Brands pretty close behind it.

  Dividend yield (%) 2020E Dividend cover (%) 2020E Pay-out ratio (%) 2020E
M & G 9.5% 2.09 x 48%
Imperial Brands 9.4% 1.85 x 54%
British American Tobacco 7.9% 1.53 x 65%
BP 7.9% -0.69 x -145%
Aviva 7.2% 2.07 x 48%
Legal and General 6.7% 1.64 x 61%
United Utilities 6.7% 1.10 x 91%
Phoenix Group 6.6% 1.76 x 57%
Evraz 6.6% 1.49 x 67%
Sainsbury 6.5% 1.43 x 70%

Source: Company accounts, Sharecast, analysts’ consensus forecasts, Refinitiv data

  Dividend yield (%) 2021E Dividend cover (x) 2021E Pay-out ratio (%) 2021E
M & G 9.5% 2.09 x 48%
Imperial Brands 9.3% 1.85 x 54%
Polymetal 8.4% 1.54 x 65%
British American Tobacco 8.4% 1.53 x 65%
Evraz 7.5% 1.58 x 63%
Persimmon 7.2% 1.16 x 86%
Legal and General 7.0% 1.56 x 64%
Aviva 6.9% 2.28 x 44%
United Utilities 6.8% 1.10 x 91%
Phoenix Group 6.7% 1.30 x 77%

Source: Company accounts, Sharecast, analysts’ consensus forecasts, Refinitiv data

Dividend heroes

History does suggest that it is not the highest-yielding stocks which prove to be the best long-term investments anyway (although the past is by no means a guide to the future). Often defending a high yield can be a burden for a firm, as it sucks cash away from vital investment in the underlying business, or can be a sign that the company is in trouble and investors are demanding such a high yield to compensate themselves for the (perceived) risks associated with owning the equity.

The strongest long-term performance often comes from those firms that have the best long-term dividend growth record, as they provide the dream combination of higher dividends and a higher share price – the increased distribution will, over time, drag the share price higher through sheer force. A 1p per share dividend on a 100p share price may not catch the eye, but if that dividend reaches 10p in a decade’s time it almost certainly will.

The ravages of the pandemic and the recession have taken their toll on the ranks of FTSE 100 firms that can point to a ten-year dividend growth track record. One year ago 25 firms were on this list. That number has since dwindled to 14 and four of those are at risk.

Pennon’s dividend will drop, albeit only owing to a change in corporate structure, while Legal & General has already announced a pause in its dividend growth for 2020. Diageo and Ashtead are also forecast to hold or even marginally reduce their next annual dividends, according to analysts’ consensus forecasts

Four firms are on the cusp of joining this elite group, as London Stock Exchange, National Grid, RELX and United Utilities are all nurturing nine-year dividend growth runs.

Even allowing for the potential changes and deletions to the list of dividend-growers, those that have maintained their runs in 2020 have been tremendous long-term investments.

The average capital gain from the 14 ten-year dividend growers is 408% and the average total return is 542%. Both easily beat the FTSE 100, at 13% and 65% respectively.

The tricky bit is that only 12 of the 25 were actually in the FTSE 100 a decade ago, so investors may need to burrow through the FTSE 250 if they are looking for the next generation of dividend growth champions.

  Total return 2010-2020 Dividend CAGR* 2009-19 Forecast dividend growth** 2020 E Forecast dividend growth** 2021 E
Ashtead 2568.0% 29.3% (3.8%) 15.0%
Scottish Mortgage 794.2% 3.7% 4.0% 5.0%
Intermediate Capital 731.8% 11.6% 4.2% 13.7%
Halma 677.9% 6.9% 3.7% 8.9%
Spirax-Sarco Engineering 614.6% 11.8% 4.2% 7.9%
Croda 371.7% 15.3% 3.4% 5.2%
Legal & General 370.7% 16.4% 0.0% 4.7%
DCC 306.6% 11.5% 4.4% 5.3%
Hargreaves Lansdown 298.1% 16.5% 11.3% 16.7%
Intertek 231.6% 15.3% (5.0%) 3.8%
Diageo 231.1% 6.6% (0.3%) 2.5%
Sage 171.9% 8.6% 2.0% 1.7%
Pennon 139.6% 6.9% (50.6%) 14.3%
British American Tobacco 84.0% 7.8% 2.5% 5.8%
 
Average 542.3% 12.0%    
FTSE 100 65.1% 5.2% (19.6%) 18.1%

Source: Refinitiv data, Company accounts. *Compound annual growth rate. **Source: Sharecast, consensus analysts’ forecasts

View our Dividend dashboard for Q4

Important information: Each quarter, AJ Bell takes the forecasts for the FTSE 100 companies from all the leading city analysts and aggregates them to provide the dividend outlook for each company. The data above relates to the outlook for 2020 and 2021. Data correct as at 4 December 2020.

These articles are for information purposes only and are not a personal recommendation or advice. Forecasts are not a reliable indicator of future performance. Target yields are not guaranteed and can fluctuate.


russmould's picture
Written by:
Russ Mould

Russ Mould has 28 years' experience of the capital markets. He started at Scottish Equitable in 1991 as a fund manager and in 1993 he joined SG Warburg, now part of UBS investment bank, where he worked as equity analyst covering the technology sector for 12 years. Russ joined Shares in November 2005 as technology correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media by AJ Bell Group, he was appointed AJ Bell’s Investment Director in summer 2013.