The latest UK Dividend Monitor from Link Group shows that UK company dividends fell 44% to £61.9 billion in 2020, or 38.1% to £61.1 billion on an underlying basis which excludes one-off special dividends.
The total just beat Link Group’s revised best-case forecast for the year, thanks to a stronger than expected fourth quarter, which saw a number of companies such as Sainsbury’s and Ferguson restore payouts they had suspended earlier in the year.
Link Group said it is highly unlikely UK dividends can regain their previous highs until 2025 at the earliest.
Dividend cuts attributed to Covid-19 started at the beginning of Q2 and reached £39.5 billion by the end of the year.
Between Q2 and Q4 about two thirds of companies cancelled or cut their payouts.
By far the biggest impact came from the financial sector, accounting for two fifths of the Covid-19 dividend cuts between April and December — with £16.6 billion of dividends cut or cancelled.
The outright cancellation of banking dividends accounted for four fifths of this.
The next biggest impact was from the oil sector, costing shareholders £8 billion in lost income.
Almost a tenth of the cuts were made by mining companies, whose dividends fell by two fifths — with Glencore’s £2.2 billion cancellation making the biggest impact.
Susan Ring, CEO Corporate Markets of 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 £11 billion reduction in oil dividends by March will take several years for the wider market to make up.
“The social and economic scars of COVID-19 will be deep.
“We think it is highly unlikely dividends can regain their previous highs until 2025 at the earliest, and potentially even a year or two after that. We’ll keep you posted.”