The amount of cash paid out in UK dividends was down 49 per cent in the third quarter of 2020 compared with last year, as companies continued to tighten their belts amid the Covid-19 pandemic.
Link Group’s dividend monitor, published today (October 21), showed dividends stood at £18bn in the three months to September — the lowest Q3 level since 2010.
Some two thirds of companies cut or cancelled their payments in the quarter, totalling £14.5bn of lost dividends.
The decline was less severe than in Q2 however, which saw UK dividends down by a record £22bn as three quarters of companies cut payouts.
Throughout the coronavirus crisis, some firms have voluntarily reduced their dividends in an attempt to form a cash buffer against the economic impact of the pandemic, while others were forced to hold back on payouts to shareholders.
The Bank of England strongly suggested banks and insurers suspend their dividends while the government mandated any firm using a support scheme should not be paying out funds to shareholders.
Link predicts the total dividends paid out from UK companies in 2020 to be a mere £60.4bn on a best-case basis and £59.9bn in a worst-case scenario. By comparison, the UK paid £111bn in dividends in 2019.
More than a third (38 per cent) of all the cuts in Q3 2020 came from banks and financials, many of which were forced to stop payments by the Bank of England.
The oil sector contributed to another fifth of cuts while mining firms scrapping payouts was one eighth of lost income.
Link predicts that in the best case, the average yield of the UK stock market for dividends will be 3.6 per cent in the next 12 months and 3.3 per cent in a worst case scenario.
This has prompted a number of fund managers to seek yield elsewhere. Quilter's Helen Bradshaw has allocated clients' funds to the US, Asia, infrastructure portfolios and alternative mandates as the UK’s dividend total dried up.
Meanwhile star fund manager Nick Train argued the crisis would transform the playing field for UK companies, saying firms could now put less emphasis on dividend payments in order to target growth.
Susan Ring, chief executive of corporate markets at Link Group, said: “[The UK] is not out of the woods, but the trees are perhaps thinning a bit.
“Our worst-case scenario has steadily improved all year and though UK investors face a historic decline in their income this year, the worst is now behind us.
“As companies become better able to assess the impact of the pandemic and the associated restrictions on their operations, some are restarting dividends and a handful are even making up some of the lost ground.”
Ms Ring said there was “no doubt” the UK had a long road ahead before dividends returned to pre-pandemic levels, but she noted there was “at least a signpost to the route” that would take it there.
David Smith, fund manager of Henderson High Income Trust, said: “The fall in UK dividends in Q3, although significant, should come as no surprise given the number of companies that have suspended or cut their dividends as a result of the pandemic.