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Covid-19 continues to plague FTSE 100 dividends

Emma Lunn
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Emma Lunn

FTSE 100 dividends are forecast to fall 24% (£18bn) in 2020, according to AJ Bell.

The investment platform’s Q3 Dividend Dashboard shows that 35 firms have cut dividends for 2020 with Shell, HSBC and BP topping the list.

The cuts equate to a 24% or £18bn reduction in dividend payments this year compared to last year.

However, even after the cuts the FTSE 100 is still expected to yield 3.5% for 2020.

Russ Mould, investment director at AJ Bell, says: “Dividend forecasts for the year have slipped by a further 10% in the third quarter to £56.5bn from £62.3bn in June (and £91.1bn in January). This is largely the result of BP’s decision to slash its second-quarter dividend in half, delivering a huge blow to income-seekers.

“As a result, dividend payments are now expected to fall for two consecutive years before starting to forge a recovery in 2021.”

Biggest dividend cutters and raisers

In total, 35 companies on the FTSE100 have cut, deferred or cancelled payments for 2020 due to the Covid-19 outbreak and subsequent recession.

But just four firms – Glencore, BP, HSBC, and Royal Dutch Shell – are expected to be responsible for the bulk of the dividend cuts across the index.

A total of 28 companies on the FTSE100 have maintained or increased dividends in 2020. The biggest dividend increases come from Aviva, BAE Systems, Persimmon and Polymetal.

British American Tobacco is now set to be the biggest dividend payer this year.

Mould says: “After dividend cuts or cancellations from Shell, HSBC and BP during the course of the year, British American Tobacco is now forecast to be the biggest dividend payer in the FTSE 100 in 2020.

“Not all investors will welcome this, especially those who feel that tobacco does not pass their socially responsible investing (SRI) screen tests. However, others will welcome how BAT’s chief executive Jack Bowles continues to stick to his target of a 65% dividend pay-out ratio. The company’s interim results offer support to earnings forecasts too, in the absence if changes to sales and earnings guidance for both 2020 and the medium-term.”

Interestingly, BP and Vodafone are both still offering yields of more than 8%, even after their dividend cuts of 2020 and 2018 respectively, while two other cutters, Imperial Brands and Aviva are both forecast to provide a yield of more than 10%.

“Aviva is one of 10 FTSE 100 firms – alongside BAE Systems, Bunzl, DS Smith, Land Securities, Mondi, Persimmon, Smiths Group, Smurfit Kappa and WPP – to have restored dividend payments or declared their intention to do so,” says Mould, “Yet that 10% forecast yield may make investors nervous, even though chief executive Amanda Blanc has a clear mandate to shake up the life insurer after her appointment to replace Maurice Tulloch in July.”