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Pandemic wrecks FTSE100 dividend outlook for 2020

Emma Lunn
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Emma Lunn

The forecast dividend pay-out for the FTSE100 has fallen from £91bn in January to £62bn in June.

This would represent a 17% fall in the pay-out in 2020 compared to the previous year, leaving the total at its lowest level since 2014, according to analysis by AJ Bell.

The investment platform says dividend payments are now expected to fall for two consecutive years before starting to forge a recovery in 2021.

AJ Bell’s latest Dividend Dashboard report shows that the FTSE100 is currently offering a 3.6% dividend yield after 48 FTSE 100 firms have cut, deferred or cancelled a dividend payment, while 49 have maintained or increased a dividend payment.

Russ Mould, investment director at AJ Bell, says: “Currently, some 46 FTSE firms are expected to increase their dividend and just 30 cut them in 2020 but the cuts tend to be much deeper and come from firms whose contribution to the overall pot was so much bigger.

“The FTSE 100’s aggregate dividend payment is forecast to drop by £12.5bn to £62.5bn in 2020 and just five firms are expected to be responsible for the bulk of that cut.”

FTSE100 companies that have cut dividends include Royal Dutch Shell, HSBC, Glencore, Imperial Brands and Compass.

Royal Dutch Shell cut its dividend in April for the first time since World War Two following the collapse in global oil demand due to coronavirus.

In April, the Bank of England has asked HSBC not to pay its fourth interim dividend, also due to coronavirus. As a result HSBC cancelled its final dividend payment of 2019 and will make no quarterly or interim payments or undertake any share buybacks until the end of 2020.

Companies contributing to FTSE100 dividend growth include Aviva, BAE Systems, Persimmon and BP.

Mould says: “Investors will have to look carefully at the list of the highest-yielding firms, as some of them have a track record of having to cut their dividend payments when times get tough.

“At the time of writing, Aviva is the highest-yielding individual stock, although that relies upon a consensus forecast whereby the 2020 dividend is higher than that of 2018 and the 2019 cut is seen as an aberration, enforced by a concerned regulator as the UK felt the first stages of the Covid-19 pandemic.”

BP is now expected to be the biggest single dividend payer, with a predicted dividend of £6,702m. Mould says BP’s status as the biggest single-payer in the FTSE100, according to consensus forecasts, presents investors with a particular conundrum.

“Sector rival Shell has already cut its dividend and BP has form in this respect, having slashed its pay-out in 1992 and then again after the Gulf of Mexico oil rig disaster in 2010. Falling oil and gas prices are pressuring its cash flow, new boss Bernard Looney wishes to reinvent the firm so it is ready for a low-carbon future and net debt is way higher than a decade ago,” he says.

“A cut would not be the biggest surprise in the world and were that to come to pass – despite Mr Looney’s public recognition of the importance of the dividend to shareholders – that would be the latest example of a double-digit dividend yield that proved too much for a company to sustain, alongside former FTSE 100 member Centrica, not to forget Taylor Wimpey, Persimmon, Vodafone and Imperial Brands among others.”