UK equity income funds are set to suffer a £28bn dividend shortfall this year as almost half of UK companies plan to scrap pay-outs to shareholders, according to new data.
Link Group’s UK Dividend Monitor, published today, showed UK companies have scrapped pay-outs to shareholders worth £28.2bn, representing more than a third (34.5 per cent) of the pot of dividend funds planned for this year.
As of yesterday, 45 per cent of Britain’s listed companies had axed their pay-outs or were certain to do so.
The first major blow for income came as the UK’s biggest banks scrapped their payments for the rest of the year following pressure from the Bank of England to maintain a cash buffer to help them through the coronavirus crisis.
According to Link, this accounted for £13.6bn of the dividends that have been culled.
Just yesterday further pressure from the central bank encouraged insurers, including Aviva, to suspend their payment until notice.
The majority of dividends in the UK are concentrated within a small number of firms.
The banks and oil companies between them account for around 37 per cent of the UK dividend pool, and the banks have already cancelled payments. For now, the oil giants are still paying.
Mining companies are also big dividend payers. Glencore is among those in the mining sector to cut their dividend so far and, according to Link, more mining dividends are at risk.
The safest dividend groups include defensive sectors such as food and drink, tobacco, utilities, food retailers, healthcare and basic consumer goods, Link stated.
Such sectors have already seen continued demand for their goods and services as the pandemic unfolded.
Kit Atkinson, head of capital markets for corporate markets EMEA at Link Group, said: “Even as we face the deepest recession since the second world war, investors can take comfort from the knowledge that tens of billions of pounds of dividends will still be paid this year. More importantly, they will bounce back next year, even under quite bearish scenarios.”
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