UK dividends: A bad 2020, but a better 2021?

Resumption of dividend payments boost shareholder confidence after pandemic-related pause.

New data show how far UK dividends fell last year, but projections for 2021 suggest the declines are nearly over.

In January 2021, Link Asset Services published its latest UK Dividend Monitor covering the final quarter of 2020 and the year as a whole. The headline figure was that total dividends fell by 44% over the year, equating to £48.7bn less dividend income received by investors in 2020 than in 2019. In fact, the level of dividend payments in 2020 was just £0.1bn higher than in 2011.

The decline in payments was spread across sectors with around two thirds of companies either cancelling or cutting their dividends between the second and fourth quarter of the year. Within that broad decline, three factors accounted for almost 75% of the lost income:

2021 started with another lockdown in force, but in Link Asset Services’ comments on the outlook for the year, it does not envisage any further dramatic falls in dividends. For a start, the Bank of England has said the banks can resume dividend payments, albeit subject to tight constraints. Any company that wanted to ‘rebase’ its dividend has probably done so by now. Add those two factors together and Link’s best case is that dividends could rise by 10.0% this year, while its worst case is a decline of 0.6%.

Last year’s dividend performance may have been grim, but the dividend yield on the UK stock market is still around 3.25%, which in the current environment is not easy to beat.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.