The future of dividends

Even with news of a vaccine on the horizon, dividends will not be able to simply bounce back to where they were.

The extent of the economic damage from the Covid crisis means that many experts are not expecting dividend payouts in 2021 to get back to 2019 levels, or to recover losses seen in 2020.

On the other hand, the dividend situation is expected to improve markedly in 2021 from current levels as the economy reopens, more industries return to work and businesses begin to restart their progressive dividend policies.  

Furthermore, the pandemic could make some businesses think differently about how they pay out dividends in the future. Some companies could see this as an opportunity to rebase their dividends altogether.

Some analysts expect companies to maintain even more resilient balance sheets in the future, with less debt and more cash. It is possible that we see consumer-facing companies seeking to strengthen their balance sheets rather than paying out so many special dividends or doing buybacks.

Already we have seen those companies with more conservatively managed balance sheets being rewarded with higher stock prices.

Furthermore, those companies who have not taken government support and are still paying their dividends – and therefore demonstrated their resilience for investors – may be the ones that are more sought after in the future.

Alice Logue is manager research analyst at Fidelity International