By Susan Ring, Co-CEO Corporate Markets
Was the worst recession in 300 years as bad for investors as it could have been? Find out from our market experts.
To support the launch of our UK Dividend Monitor for Q4 2020, we hosted our second webcast using our sister company Orient Capital’s webcasting platform to discuss our results and forecasts with a panel of market experts.
On 27 January 2021, Susan Ring – CEO of our Corporate Markets business – led the discussion alongside our Head of Capital Markets, Kit Atkinson, and Mark Baker, Research Director at 5i Research UK.
Susan first reminded us of a historic year for UK dividends. 2020’s second quarter showed an immediate impact across almost all company sectors and sizes. Subsequent quarters also saw declines, but some sectors fared better than others.
What happened to UK dividends in 2020?
Mark explained that due to COVID-19, there were many reasons for dividend cuts, from regulatory intervention, to the need to preserve cash. We saw two thirds of listed companies reduce or cut payouts in the latter three quarters, totalling a fall of over £39bn.
In addition to the simple impact of lockdowns, the UK’s banking regulator prohibited dividends altogether, while government support for other companies made it impossible for them to reward shareholders.
The UK vs. the world
To support the launch of our UK Dividend Monitor for Q4 2020, we hosted our highlights webcast using our sister company Orient Capital’s webcasting platform to discuss our results and forecasts with a panel of market experts.
UK dividends were certainly hit harder than most other economies, but Kit reminded us why the reliance on a few big companies left the UK vulnerable to begin with and how we’ve coped well in light of that – maintaining the highest dividend yield among comparable countries.
In the UK, two thirds of dividends come from the top 15 companies – investors rely on a small number of big payers, who were hit hard or prohibited from paying shareholders. Some also struggled because of their unsustainably large payouts before 2020.
The reliance of the UK market on very few mature and relatively high-paying companies has emphasised the cut in income payments. But the prospect of some high profile IPOs in high-growth sectors offers the opportunity for some diversification.
Following several lacklustre years for London IPOs, rumours abound of well-known brands pursuing a London listing that will hopefully provide the opportunity for some capital growth over the coming years.
Is there hope?
Mark explained that the UK government’s support for companies throughout 2020 has likely made this recession less catastrophic than it could have been. In our 2019 ‘normal’ world, we already predicted a fall in dividends in 2020 – albeit far smaller.
There’s no denying that this has been the worst recession and it’s clear why some industries, such as hospitality and travel, have suffered more than others. But Mark clarifies that this is an economic crash – and has not been caused by a more deep-seated financial crisis like 2008 – and investors have still received over £60bn of dividends. Moreover, over 30 companies have already restored their suspended payments.
The road ahead
Kit reminded us that, despite the severity of the pandemic in the UK, the UK financial ecosystem performed admirably in many ways. Companies were supported by a rapid policy response, such as the relaxation of pre-emption guidelines, and extensive investor support with shareholders providing more than £40 billion in equity financing to over 450 companies.
Quick responses by government, industry bodies and issuers put businesses in a much better place to weather the rest of the pandemic.
What has changed for good?
Uncertainty still remains in the UK, which directly affects its investors. But many companies are rebasing on a more sustainable and resilient model that can give shareholders confidence in their income security. Households have saved £100bn of cash during lockdowns, which may eventually give the most negatively impacted industries the biggest bounce-back when normality resumes.
The future: 2021 and beyond
Mark warned us that we often see lags in the effects on dividends and shouldn’t expect to see any considerable improvements until the second half of 2021. What’s more – it will likely take over five years to get back to where we were before COVID-19.
But investors should think long-term when it comes to their income. And while we have a rocky road ahead, we expect many companies to find new opportunities for a sturdier, brighter future for UK shareholders.