2020 was a painful year for income investors. As the pandemic tightened its grip on the world and shut down economies, companies fled for cover. By the end of Q2 2020, three quarters of all the UK companies that had been expected to pay dividends in the three-month period had cancelled or cut them according to Link. In that one quarter, dividend payouts fell by more than 50 per cent, the biggest quarterly fall on record.
The worst hit sectors were financials, consumer discretionary and resources and commodities. As demand for oil slumped, long standing dividend stalwart Shell chopped its dividend by 66 per cent, the company’s first cut in about eight decades. Although defensives didn’t bat an eyelid, and payments from big pharma and tobacco carried on uninterrupted, the rug was well and truly pulled from under income investors. Dividends are one of the defining features of the UK stock market and in the pre covid world, UK dividend payments followed a pattern of seemingly inexorable increases, as they rose from £63bn a year in 2011 to more than £112bn in 2019.
Now, one year on, dividends have bounced back, and we have revisited our annual assessment of the UK biggest dividend payers in our Income Majors special. Link recently reported that payouts from almost every sector have risen year on year, and that overall Q2 dividends (including specials) jumped 51 per cent - considerably more than the 31 per cent it had pencilled in. Janus Henderson which monitors global dividend trends has reported a similar strong rise as companies around the world also restarted payments. In Q2 European dividend payments rose more than 66 per cent on the same period last year.