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UK Dividend Monitor Q1 2021

 April 2021 / Link Group

Q1 dividends fall at slowest rate in a year as bounce-back begins

  • Payouts fell 26.7% to £12.7bn in Q1 year-on-year on an underlying basis
  • ​But the decline was the slowest in a year and half of companies increased, restarted or held dividends steady
  • Q1 cuts totalled £5.8bn – about half came from the oil sector
  • ​Headline dividends jumped 7.9% thanks to the second-highest one-off specials on record
  • Over the last twelve months, the pandemic caused a 41.6% fall in dividends – cuts totalled £44.8bn, as two thirds of companies made reductions
  • ​Greater clarity on outlook for banking payouts means Link Group’s best-case forecast for 2021 reduced to £66.4bn (excluding one-off specials), an increase of 5.6% year-on-year; headline payouts will jump by a sixth to £74.9bn
  • ​Worst-case sees upgrade thanks to greater visibility. Instead of a 0.6% decline, dividends should rise no less than 0.9% this year on an underlying basis

UK dividends fell at their slowest rate in Q1 since the pandemic began, according to the latest UK Dividend Monitor from Link Group. Underlying dividends, which exclude one-off specials, fell by 26.7% to £12.7bn. Since the 48.2% collapse in payouts in Q2 2020, the first quarter to feel the effects of the pandemic, each successive quarter has seen a slower decline. In a sign that recovery is on the way, half of UK companies either increased, restarted or held their dividends steady in Q1, compared to just one third in Q4 2020.

The biggest positive contribution in Q1 came from the restoration at full strength of housebuilder Persimmon’s interim payout, worth £398m, along with an extra interim dividend from Aviva to help catch up for lost ground in 2020. Meanwhile, Investec became the first bank to restart its dividend.

Of the £5.8bn of Q1 cuts, the oil sector made up almost half. Other big Q1 reductions came from BT, Compass, Associated British Foods (owner of Primark) and Easyjet. On a headline basis, Q1 dividends were up 7.9% as one-off special dividends hit their second-highest total on record at £6.1bn. Most of this came from the disposal proceeds of Tesco’s Asian operations, but the resurgent mining boom meant a large special dividend from BHP too, along with a smaller one from Ferrexpo.

Looking at the full 12-month picture of the pandemic, the final tally shows a 41.6% drop in payouts. Two thirds of companies reduced or pulled their dividends. In total, COVID-19 cost investors £44.8bn in lost dividends from Q2 2020 to Q1 2021. The banks, banned from paying dividends by the PRA, made up three tenths of the decline, oil companies another quarter. Miners accounted for £1 in every £14. Leisure and travel, housebuilding and consumer goods also made a significant impact.

Top 100 payouts fell less than in the mid-250 and among smaller companies thanks to large, defensive dividend giants like AstraZeneca. Top 100 payouts fell 39.1% (the cuts that were made totalled £36.4bn) compared to a decline of 60.3% in the mid-250 (cuts totalled £6.7bn). Just over half (54%) the top 100 cut dividends, almost two thirds (65%) of mid-250 companies followed suit, but over three quarters (76%) of the UK’s smaller firms were forced to make reductions.

By value, food retailers were the stand-out winners, increasing their dividends by 22.0% on an underlying basis, thanks, in particular, to Tesco. Consumer basics (including names like Unilever and Reckitt Benckiser) and general financials were the only other two sectors to see dividends grow between April 2020 and March 2021.

The outlook is brightening. Banking dividends are returning, though at low levels and there are positive signs from miners, insurance, and media companies. Link Group now expects underlying dividends to rise 5.6% to £66.4bn (down from an expected increase of 8.1% in January). For the full year, headline dividends will shoot up 17.2% to £74.9bn, thanks to the enormous Tesco one-off in Q1 as well as special dividends from bumper mining profits (BHP, Rio Tinto, Ferrexpo). Link Group’s worst case gets an upgrade thanks to the growing visibility around the recovery. Link Group does not expect payouts to rise any less than 0.9% this year on a worst-case underlying basis (compared to a decline of 0.6% three months ago). This would mean worst-case underlying payouts of £63.4bn and headline of £71.0bn.

Ian Stokes, Managing Director of Corporate Markets EMEA, part of Link Group said: “After the year-long pandemic winter for dividends, the buds of spring are about to burst into bloom. It’s hard to characterise the big drop in the first quarter as anything but bad news, but look closer and the green shoots are already sprouting.

“There are some big changes coming in the second quarter. During the pandemic, many companies that had been over-distributing permanently reset their dividends to more sustainable levels. Most of these now hope to grow their dividends from this lower base. For others the effect of the cuts is more transitory so they will bounce back quickly.

“Most importantly we will see the return of banking dividends though at relatively low levels. Investec blazed the trail in Q1, but Q2 will see all the banks start paying again. The commodity boom is leading to a surge in mining dividends too, but we expect growth to get stronger and broader over the next six months.

“Crucially we increasingly see limits to the downside this year, though we caution that 2025 still looks like the most realistic moment for dividends to match their 2019 high point.”


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