The group’s UK Dividend Monitor found that in 2020 dividends fell 44% to £61.9bn on a headline basis, the lowest annual total since 2011. Underlying dividends (which exclude special payments) fell 38.1% to £61.1bn.

Two-thirds of companies cancelled or cut their dividends between Q2 and Q4. However, a better than expected Q4 was boosted by some suspended payouts being restored.

The financial sector contributed two-fifths of the dividend cuts, mainly owing to a ban on banking dividends being paid.

The next biggest impact was from the oil sector, costing shareholders £8bn in lost income. Having struggled to sustain their very large payouts in recent years, the UK’s major oil companies took this opportunity to reset their dividends to more sustainable levels, collectively three-fifths lower than before.

Almost a tenth of the cuts were made by mining companies, whose dividends fell by two-fifths. Glencore’s £2.2bn cancellation made the biggest impact. Miners often pay special dividends but these were sharply curtailed too.

Looking ahead

For 2021, Link Group expects a best-case increase of 8.1% on an underlying basis, yielding a total £66bn; headline dividends (which include specials) would rise 10%.

But in a worst-case scenario payouts could fall again in 2021, dropping 0.6% to £60.7bn on an underlying basis, or £61.5bn including special dividends.

Link does not expect UK dividends to regain previous highs until 2025 at the earliest.

Both higher share prices and a lower forecast for dividends mean a compression of the prospective yield on equities. Based on Link’s best-case scenario for 2021, UK equities will yield 3.1% or 2.8% if its worst case materialises.

Susan Ring, CEO of corporate markets at Link Group, said: “A slightly better end to 2020 may be a cause for relief but not for celebration. This was a dreadful result for UK investors, especially those for whom dividends are a major source of income. UK payouts have been more severely impacted than in most comparable countries because of their heavy concentration in the hands of just a few very large companies, mainly in the oil, mining and banking industries – all sectors that have had to cut dividends steeply.

“There are reasons for optimism, but the resurgent pandemic has pushed back the reopening of the economy even further, especially in the UK. We still believe the worst is past, but a new lockdown means our expectations for 2021 are significantly more subdued. The biggest upside will come from the banks. They will only partially restore their dividends, but it matters more how quickly they do so, rather than exactly how much they pay. By contrast, the £11bn reduction in oil dividends by March will take several years for the wider market to make up.”