FTSE 100 dividend payments swamp cuts and cancellations in April

Writer,

HSBC may have disappointed a few optimists who had been hoping for a first-quarter dividend, and BP unveiled a fourth straight year-on-year cut. But the oil major’s move surprised no-one, the bank dangled the possibility of an interim payment, and overall in April UK-listed firms that made or restored payments to investors hugely outnumbered those who cut them.

Payment declarations came to £3.1 billion, while a further £0.2 billion worth of dividends were restored, against just £0.8 billion of cuts (which was basically BP).

The aggregate of dividends paid and restored now exceeds the value of those cut or cancelled since COVID-19 swept around the world by over £20 billion, or more than 40%, to suggest that companies really do feel the worst may be behind us, in terms of the pandemic and the economic downturn.

UK dividend payments
  Cut (£ million) Kept (£ million) Restored (£ million) Kept & restored (£ million)
Mar-20 15,217 1,020 0 1,020
Apr-20 10,967 8,423 0 8,423
May-20 5,012 3,674 0 3,674
Jun-20 638 1,967 0 1,967
Jul-20 5,216 6,791 1,105 7,896
Aug-20 4,148 3,294 1,314 4,608
Sep-20 1,191 582 605 1,187
Oct-20 4,243 2,011 133 2,144
Nov-20 776 4,793 609 5,402
Dec-20 412 240 155 395
Jan-21 27 1,141 91 1,232
Feb-21 2,712 14,590 5,205 19,795
Mar-21 307 7,182 706 7,888
Apr-21 769 3,070 153 769
2020 47,820 32,795 3,921 36,716
2021 to date 3,815 29,924 6,155 36,079
Total 51,635 62,719 10,076 72,795

Source: Company accounts

Share buyback activity continued to accelerate, as well, to put even more cash in investors’ pockets. Four firms announced new buybacks schemes in April and two – Unilever and BP – hailed from the FTSE 100 and contributed the lion’s share of the month’s £3.2 billion tally.

Buybacks with a value of £7 billion have already been declared in 2021 overall and ten FTSE 100 firms – Barclays, Berkeley, Standard Chartered, Rightmove, Sage, CRH, Ferguson, NatWest, Unilever and BP – have got in on the act.

Uncertainty over new waves of the virus in India mean the scenario of a robust global economic recovery is by no means certain to play out, while the base for comparison on a year-on-year basis has passed its softest point.

Dividend cuts peaked last March as firms responded swiftly to the pandemic and the bulk of the damage, from the narrow perspective of investors and their portfolios, had been done by July.

The comparisons will get tougher from there and investors will then be back to measuring not whether a firm has cut, kept or restored a payment but how distributions measure up to analysts’ forecasts.

On the basis of aggregated bottom-up forecasts, the consensus estimate from the only the FTSE 100, for example, is for dividend payments to reach £74.2 billion in 2021, 21% higher than 2020’s tally of £61.4 billion.

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

As the FTSE makes its latest attempt to crack and then pull away from the 7,000 mark, that equates to a dividend yield for 2021 of 3.7% - a figure which may appeal to income seekers, when their initial benchmarks are cash and the UK ten-year Gilt, where the Bank of England base rate is 0.1% and the current yield 0.85%. Better still, that 3.7% outstrips the year-on-year growth rate in the consumer price index and thus helps to protect savers’ wealth from inflation, which is running at 0.7% (and expected by many to rise further).

However, investors do need to ensure they feel that dividend growth forecast is reliable.

Three quarters of the anticipated dividend growth, or some £10 billion, is due to come from just ten of the FTSE 100’s members, so income-seekers who are looking to access the UK market via an index-tracker, for example, rather than individual stocks or an actively-managed fund, need to do their research on those names in particular.

  2021E Dividend growth (£ million) 2021E Dividend growth (% FTSE total)
Rio Tinto 2,688 20.9%
BHP Group 1,451 11.3%
HSBC 1,046 8.2%
NatWest Group 969 7.6%
Anglo American 966 7.5%
Barclays 763 5.9%
BT 694 5.4%
Lloyds 659 5.1%
Persimmon 398 3.1%
Evraz 343 2.7%

Source: Consensus analysts’ forecasts, Marketscreener, Refinitiv data

Miners and banks dominate.

This means the FTSE 100, and wider UK market, may be an option to consider for those investors who do think that a rip-roaring economic recovery is coming, or at least that inflation (or even stagflation) may be on the way.

History (in essence, the 1970s) suggests that under such a scenario investors may want to own ‘real’ assets, such as commodities, or at least paper claims on their producers via shares, while a steepening of the yield curve could be good for banks, whose shares still trade below book value (at least in the UK) thanks in part to fears of debt deflation and bad loans.

A surge in iron ore to a new record high and copper’s move toward its 2011 peak at least seems to bear out part of the bullish thesis for now. Both metals are key to the earnings – and cashflow – of BHP Group and Rio Tinto, the two biggest forecast contributors to FTSE 100 dividend growth in 2021.

Underlying EBIT, 2020*
  BHP Group ($ million)   Rio Tinto ($ million)
Iron Ore 12,924 Iron Ore 18,837
Copper 2,590 Copper & Diamonds 2,172
Coal 811 Aluminium 2,152
Petroleum 750 Energy & Minerals 1,646
Group/other (1201) Group/other (94)
Total 15,784 Total 24,713

Source: Company accounts. *BHP fiscal year to June 2020, Rio Tinto to December 2020

By the same token, any investor who fears a double-dip recession, owing to the pandemic, global indebtedness or even dislocation in potentially (over)heated financial markets may fight shy of the UK for exactly the same reasons, even if bulls appear to be winning out over bears, based on the first four months of 2021 at least.

These articles are for information purposes only and are not a personal recommendation or advice.


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.