UK Dividend Monitor - Q2 2020

[Itsallaguess]

The latest Link Group 'Dividend Monitor' has now been released for Q2 2020-

UK Dividend Monitor Q2 2020 -

Overview

• Covid-19 caused unprecedented cuts in dividends in Q2 2020

• 176 companies cancelled payouts and 30 more cut them, together representing three quarters of Q2 payers

• In the aftermath of the Global Financial Crisis (GFC), just two fifths of companies cut or cancelled payouts

• Dividends fell 57.2% to £16.1bn on a headline basis, or 50.2% to £16.0bn if special dividends are excluded

• This was the biggest quarterly fall on record

• 124 companies rescinded dividends already promised

Where did the cuts fall hardest?

• Half the £16.4bn impact came from the financial sector

• Shell’s cut, along with smaller oil companies, made up another £2.2bn

• Nine tenths of industrials cut payouts, costing investors £2.0bn

• Consumer discretionary companies (retail, housebuilding etc) cut by £1.7bn, with more than nine tenths cancelling payouts altogether

• Consumer basics were much more resilient

Outlook

• Q2 brought enormous clarity to the UK dividend picture and enabled us to narrow the gap between our best- and worst-case scenarios significantly

• Our best case now sees payouts falling 39% to £60.5bn on an underlying basis, or 45% down in headline terms (which includes special dividends)

• Our worst case sees a fall of 43% to £56.3bn on an underlying basis, or 49% on a headline basis

• 2021 is set to see a rebound but it will be several years before dividends reach 2019 highs

• Companies have used 2020 as an opportunity to reset excessive payouts at a more sustainable level

The very interesting and comprehensive Q2 2020 Dividend Monitor report from Link Group can be downloaded in PDF form using the following link -

https://www.linkassetservices.com/documents/link-group-q2-2020-dividend-monitor.pdf

Cheers,

Itsallaguess

[Arborbridge]

Thanks for posting this, Itsallaguess. Looking at the Outlook section, - if it is anywhere near correct - does suggest that most HYP systems that we have discussed since the previous crash, ought to be resilient enough to cope with what Covid has thrown at us. i.e. a 50% fall in income and a 5-7 year recovery.

Well, as we always say, "only time will tell".

Judging from what people have published here recently, our HYP income falls may have been on the softer side compared with the numbers they give, but that would need some more detailed analysis.
In my case, I have 9 companies cancelling from 34 plus 3 cutters, whereas the potential from a quick look at this report was far higher. Perhaps that suggests there is worse to come for me... but at present I feel that the damage hasn't been as bad as it might have been (if I had chosen 34 from the 176 which cancelled!)

Arb.

[Itsallaguess]

Judging from what people have published here recently, our HYP income falls may have been on the softer side compared with the numbers they give, but that would need some more detailed analysis.

I think you're right Arb, and this is likely to be explained by the fact that UK market dividends in cash terms are usually very heavily weighted towards a relatively small number of large companies, so where heavy dividend cuts are seen in that smaller sub-section of higher-payers (in actual cash terms), then those cuts feed through quite dramatically to the headline figures being discussed in the Dividend Monitor report.

This is confirmed by the data on page 9 and the chart on page 11 of the PDF linked earlier, showing the very high concentration of UK dividends -



Source - https://www.linkassetservices.com/documents/link-group-q2-2020-dividend-monitor.pdf

I imagine the majority of HYP's will have a much more diverse and balanced concentration of income from their underlying holdings, so the cuts at portfolio level are likely to be less pronounced, which again shows one of the huge benefits of holding income portfolios that are widely diversified at both company and sector level...

Cheers,

Itsallaguess

[tjh290633]

My top 10 holdings currently contribute over 50% of the portfolio income.

Rank   EPIC   % Income   Cum Inc
   1   BP.       7.76%     7.76%
   2   LGEN      6.48%    14.23%
   3   RIO       5.96%    20.20%
   4   BATS      5.94%    26.14%
   5   IMB       5.26%    31.40%
   6   SSE       4.96%    36.36%
   7   BHP       4.79%    41.15%
   8   NG.       4.56%    45.71%
   9   VOD       4.43%    50.14%
  10   GSK       3.94%    54.07%

That is based on what we know now, of course. The total is down about 29% on the last 12 months.

TJH

[Dod101]

I think that it is significant that as the report comments, a number of UK companies have taken the opportunity to reset excessive payouts to more sustainable levels. That of course has simply added to the pain from Covid and accounts for the cut at Imperial Brands and certainly contributed to the cut at Shell. HSBC's cut was forced upon it, although, given its lack of progress in improving its profitability, was maybe on reflection considered not so bad by its management. Time will tell on that one once we see what a reinstated dividend looks like.

Dod

[Itsallaguess]

I think that it is significant that as the report comments, a number of UK companies have taken the opportunity to reset excessive payouts to more sustainable levels. That of course has simply added to the pain from Covid and accounts for the cut at Imperial Brands and certainly contributed to the cut at Shell. HSBC's cut was forced upon it, although, given its lack of progress in improving its profitability, was maybe on reflection considered not so bad by its management.

Time will tell on that one once we see what a reinstated dividend looks like.

I completely agree Dod, which was one of the reasons that I questioned pyad on a recent thread where he was making allowances for Covid-related gaps in payment history...

For me there are two questions at the moment for cutters -

1. When will they resume dividend payments?

2. At what level of yield will they eventually be resumed?

My thoughts on that thread, when considering the potential for the allocation of fresh capital, would be to err on the side of overweighting 'good payers' at this current time, rather than ignoring gaps in payment histories and trying to answer the above two questions in too positive a manner...

For me, to potentially overweight 'good payers' at this time, with a view to re-balancing as the Covid fog eventually begins to clear, would be the lesser of two evils, and at least introduce some level of manageable certainty into the process rather than flying completely blind on a whim of faith..

Cheers,

Itsallaguess

[Dod101]

By buying 'good payers' you are inevitable lowering your sights I guess in terms of income. That has for a long while seemed to me to be the way to go although even the mighty Unilever, which reports on Thursday I think, is rumoured to be if not struggling, certainly feeling the effects of Covid. Hopefully it will not affect its dividend policy.

Dod

[idpickering]

By buying 'good payers' you are inevitable lowering your sights I guess in terms of income. That has for a long while seemed to me to be the way to go although even the mighty Unilever, which reports on Thursday I think, is rumoured to be if not struggling, certainly feeling the effects of Covid. Hopefully it will not affect its dividend policy.

Dod

You're right re Unilever reporting on this Thursday Dod, that being their interims. See ; https://www.lse.co.uk/share-prices/fina ... 3-Jul-2020 and their own financial calendar here; https://www.unilever.com/investor-relat ... -calendar/
Ian.