Is dividend income doomed?
UK Companies' dividend payouts in Q3 2020 were the lowest for ten years and almost 50% lower than in the same period of the previous year. (Link Dividend Monitor)
In Q3 2019, total dividends paid to shareholders by British firms were £35.3bn. This figure dropped to just £18bn in Q3 2020.
The data show that UK listed companies have paid out £51.6bn to shareholders over the first nine months of the year, which represents a decline of 44.3% from 2019 levels.
The forecast for the full year is between £61.2bn and £60.6bn, compared to a total payout for 2019 of £110.5bn.
This was obviously partly done by either express or implied obedience to an imperative set by the Government and/or the regulator, who were wary of big payouts to shareholders when most companies were benefitting one way or another from Government (Tax payers) handouts, such as the furlough scheme.
Some companies decided to fall in line, just because of the uncertainties that the Governments reaction to the Wars-Cov-2 virus created.
However, we are seeing first green shoots from companies, despite the ongoing uncertainties created by Governments around the globe. While, for example Royal Dutch Shell earlier in the year cut its dividend almost by half, it has, in Q£, started to raise the dividend again from that low level by 4%. Not only that, but the management has committed to a policy of increasing the dividend by 4% per annum for the foreseeable future.
This should give some comfort to shareholders, particularly those who are just looking to enter a position now and who have not experienced the fall in the share price from the top this year.
Legal& General is another example of a company defying the odds and the Bank of England imperative of financial institutions not to be seen as favouring their shareholders in these times of uncertainty. L&G has committed to paying is full dividend as well as raising it going forward, as it is well diversified within its sector and has some visibility towards its cash flows.
However, the extend to which companies have accepted Government support will strongly influence their freedom to pay shareholders.
The sectors most affected were banks (-2/5), Oil majors(-1/5) and miners (-1/8).
However, while economic uncertainty was felt around the world and Governments everywhere set up some schemes to help their respective economies during their self imposed lock-downs, dividend cuts were felt less in Global dividend funds, then their UK brethren.
Using the Lapis Global Top 50 Dividend yield fund again as an example, the regular quarterly rebalancing and focus on dividend consistency helps to maintain a healthy dividend yield, that is currently amounting to 4.5% inside the fund.
(Disclaimer: This fund is solely used for illustration purposes, as are the two companies mentioned in the article, RDS and L&G, and is NOT intended to constitute a solicitation to buy or sell. Investors are advised to seek their own advice when it comes to any investments).
As always, the suggestion is to diversify (your income streams) and to REGULARLY rebalance to ensure that you avoid human behavioural errors and automatically apply a buy low- sell high strategy.