Dividends will not return to pre-pandemic levels until 2025, but financial services firms may buck the trend, according to an expert.
Adrian Gosden, investment director at Global Asset Management, said dividends will not return in due course because a number of firms were effectively overpaying before the pandemic.
“We will not get to the 2019 dividends in the next four years,” he said at the firm’s UK equity income webinar on June 15.
“There were some companies in the United Kingdom that were over-distributing, so they were paying probably too much in dividends [before the pandemic].”
He added although the cyclical sectors, such as logistics and construction, were already starting to rebound, financial services firms would recover fastest.
“Financials will cause the biggest delta, because they were asked by the regulator to [make] provisions for the pandemic.”
He explained that the actual hit of the pandemic was much less traumatic on the financial services industry than expected, and the regulator is now allowing the firms to distribute the provisions via dividends.
“That will be the biggest one into the pockets of investors.”
Gosden added that it will be interesting to see what happens to dividends once the lockdown ends.
“The UK economy is growing at seven and a half percent this year, there's much more than anyone ever thought it was going to do.
“But everyone automatically has the [economy] next year as just being completely flat - once we come out of lockdown that’s it.
“We [are] a little bit more optimistic about growth. We think there has been some changes in the economy, and as a consequence, we think you will actually see some low single digit growth in the dividend in 2022.”
Gosden’s views on dividend expectations were matched by the Link Group, whose dividend monitor in January predicted that UK dividends were unlikely to recover to pre-pandemic levels until 2025 at the earliest.
Dividends stood at £61.9bn in 2020, 44 per cent less than 2019 and the lowest annual total since 2011.