Equity Income  

Sentiment recovery for income investors as dividends rise

Sentiment recovery for income investors as dividends rise

Income investors are reporting a more positive outlook for their portfolios as dividends have begun to recover from the pandemic.

Some 28 per cent of income investors questioned between June 7 and July 5 reported a considerable or big impact on their portfolios from dividend cuts, compared with 41 per cent last year.

The research was carried out by Research in Finance on behalf of the Association of Investment Companies (AIC), and questioned 402 private income investors.

The comparison was with last August's survey of 548 income investors.

Just under one in ten (9 per cent) of income investors said they have had to re-think their future plans or lifestyle in response to dividend cuts, compared with 17 per cent last year.

Of the 91 per cent who haven't had to change their plans, 40 per cent believed they won't have to make changes even if firms continue to pay lower dividends. 

A further 30 per cent said they could maintain their same lifestyle for three years before any changes would need to be made.

Annabel Brodie-Smith, communications director at the AIC, said although dividends haven’t fully recovered from the pandemic, it seems the outlook is brightening.

“Fewer investors are experiencing such a big impact on their portfolios and fewer are having to make hard choices to compensate for the loss of income,” she said. 

“Unfortunately, some investors are still having to cut back on everyday luxuries, cancel holidays or even delay retirement, but most now feel they won’t have to change their lifestyle even if businesses continue to pay lower dividends.”

Dividend payments were slashed in 2020 as firms shored up cash amid the pandemic uncertainty.

Figures from Link Group’s latest dividend monitor showed that, although dividends rose 89 per cent year-on-year between July and September, the payments are not yet back to 2019 levels

Most sectors have paid less year-to-date than they did in 2019, Link said. 

However, the positive news led Link Group to update its forecast for the full year.

It now predicts 2021 will see shareholder payments of £93.2bn, a 45 per cent increase year-on-year. Underlying dividends are expected to rise 22 per cent to £77.4bn, mostly due to the mining boom. 

 sally.hickey@ft.com