All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Capital is at risk.
How has the coronavirus pandemic affected dividend yields in 2020?
Dividend yields have fallen in the FTSE, S&P 500 and other global markets.
Dividend yields are an important part of choosing and owning stocks. They may just provide a little boost to your share portfolio or they could be the whole reason you invest.
Yields had been rising over the past five years, but the coronavirus pandemic saw global stock markets suffer steep declines. While the markets have partially recovered, a longer lasting effect is that many companies reduced or paused the dividend yields they paid out to shareholders. Here we explore the dividend landscape in the UK and around the world to see how yields have been impacted by the pandemic.
Quick stats
- British companies have cut dividends by 57% (£24 billion) in the the second quarter of 2020 to shore up their finances in the wake of the economic downturn.
- 176 companies cancelled payouts all together and 30 reduced them, which represents around three-quarters of all companies that normally pay dividends.
- The FTSE 100 dividend payout forecast for 2020 is down by 32% – from £91 billion to £62 billion.
- Half of the cuts in underlying dividends were in the financial sector, as banks were ordered by regulators to cancel dividends for the year.
- AJ Bell
- Market Watch
- DividendData
- Financial Times
- Investment Week
- SP Global
Dividend rates for UK companies
Year-on-year payouts for the FTSE 100 fell by 45% (Q2, 2019 vs 2020) while for the more domestically focused mid-cap FTSE 250, year-on-year payouts fell by 76%. One potential reason behind the smaller decrease in the FTSE 100 is that it features a much higher proportion of businesses that generate significant revenues overseas compared to the FTSE 250.
| Index | Year-on-year drop in dividend payout (Q2 2019 vs Q2 2020) |
|---|---|
| FTSE 100 | 45% |
| FTSE 250 | 76% |
FTSE100 dividend rates
The FTSE 100 dividend payout forecast for 2020 is down by 32% – from £91 billion to £62 billion. Most of this comes from 20 firms, which are expected to generate almost three-quarters of the the FTSE 100 payout this year. 10 firms alone are expected to generate 55% of the projected payout, after 48 companies in the UK’s index of leading stocks have either cut, deferred or cancelled dividends as a result of the COVID-19 crisis.
The forecasts for the UK’s biggest listed companies in the FTSE 350 index expect payouts to fall at least 39% to £60.5 billion, or at worst by 43% to £56.3 billion. This would be a record drop in the income that investors have come to expect from their stakes in the UK’s biggest listed companies, as last year investors were paid £98.5 billion in dividends by FTSE 350 companies.
Shell, the top dividend payer for seven out of the past eight years has also cut its dividends – the first time since the Second World War that it has done this. Only 14 companies have increased their dividend payments each year for the last 10 years (down from 25 last year).
Historical change of UK dividend yields
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||||
|---|---|---|---|---|---|---|---|---|---|
| FTSE 100 dividend yield | 3.54% | 3.98% | 3.65% | 3.81% | 4.68% | 4.35% | |||
| FTSE 250 dividend yield | 2.65% | 2.58% | 2.72% | 2.64% | 3.39% | 2.93% | |||
| FTSE All-Share dividend yield | 3.39% | 3.70% | 3.47% | 3.59% | 4.46% | 4.09% |
Average yields for the FTSE 100 and FTSE 250 indices increased significantly since 2014. However, they both dropped by more than 5% between 2018 and 2019, and will fall significantly in 2020 due to the coronavirus pandemic.
As of July 2020, the insurance company Aviva is the top-paying dividend stock in the UK with an annual yield of 11.7%. This is closely followed my M&G on 11.5%, while the oil company BP sits third with an annual yield of 10.6%.
Top 5 FTSE companies by dividend yield (Q2, 2020)
1. Aviva (11.7%)
2. M&G (11.5%)
3. BP (10.6%)
4. Imperial Brands (9%)
5. Standard Life Aberdeen (8.5%)
Dividend cover
Dividend cover is a yardstick measuring whether profits forecast for next year would cover a company’s most recent total annual dividend. It is the amount of profit a firm makes divided by the sum of dividends it pays out to shareholders. For example if a company makes a profit of £100 and pays £50 in dividends, its dividend cover is 2.
Dividend cover below one is problematic, as this means that the company in our example pays out more in dividends than it makes in profit, which is unsustainable in the long run. A dividend cover of two and above is ideal as this means the profits are more than double what the company pays out in dividends.
Dividend cover by region
| Region | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| North America | 1.1 | 2.9 | 3.2 | 3.2 | 2.5 | 2.7 | 2.5 | 2.1 | 2.1 | 2.2 | 2.2 | 2.3 |
| Emerging markets | 3.2 | 3.4 | 3.5 | 3.5 | 3.1 | 3.1 | 2.7 | 2.8 | 2.9 | 2.9 | 2.9 | 2.7 |
| UK | 0.7 | 1.8 | 1.9 | 2.5 | 1.4 | 1.5 | 1.2 | 0.7 | 0.7 | 2 | 1.4 | 1 |
| Europe excluding UK | 1.2 | 1.6 | 2.4 | 1.8 | 1.7 | 1.6 | 1.6 | 1.3 | 1.5 | 2 | 1.8 | 1.6 |
| Asia Pacific excluding Japan | 2.1 | 2.6 | 3.3 | 2.9 | 2.5 | 2.3 | 2.4 | 1.8 | 1.8 | 2.1 | 2.2 | 1.9 |
| Japan | 0.3 | 2.4 | 3.3 | 2.5 | 3.1 | 3.9 | 3.4 | 2.2 | 3 | 3.1 | 3 | 2.2 |
| Global | 1.4 | 2.4 | 2.9 | 2.8 | 2.4 | 2.5 | 2.3 | 1.9 | 2 | 2.3 | 2.3 | 2.1 |
Aggregate earnings cover ratio of the FTSE 100 currently stands at 1.4 times (equating to a 72% payout ratio) which suggests that management teams, analysts and shareholders are pinning their hopes on a second-half pickup in economic activity. In 2019, the UK had the lowest average dividend cover across major markets, standing at just 1. In contrast, emerging markets had a much higher dividend cover of 2.7 along with US firms, which had a dividend cover of 2.3
Dividend rates for US companies
US companies, which are scrambling to withstand the economic fallout of the coronavirus pandemic, unveiled the steepest dividend cuts since 2009. Shareholders were notified of a $42.5 billion (£33.4 billion) net reduction in dividend payouts for the second quarter of 2020. 305 US firms officially cut their dividends, with an additional 334 suspending dividend payments.
S&P 500 dividend rates
While in mid-Feburary the S&P 500 was on track to set its ninth annual record for dividend cash payouts, the pandemic has drastically changed this forecast. The first 6 months produced $14.9 billion (£11.7 billion) in announced increases and $42.5 billion (£33.4 billion) in cuts, resulting in a $27.6 billion (£21.7 billion) net reduction in dividends.
The $42.5 billion (£33.4 billion) decrease in dividend payments thereby represents the worst quarter since the financial crisis in 2009. Compared to companies in the UK, which have cut dividends by 57% in 2020, US stock indices have “only” cut theirs by about 34%.
Sources
Click here for more research. For all media enquiries, please contact
Matt Mckenna
Head of UK communications
T: +44 20 8191 8806
Head of UK communications
T: +44 20 8191 8806
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