Income investors warned to expect poor dividend growth in 2020
The UK’s top dividend-paying firms have shown lacklustre performance so far this year.
2nd March 2020 11:52
by Tom Bailey from interactive investor
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The UK’s top dividend-paying firms have shown lacklustre performance so far this year.
In potential bad news for income investors, the UK’s top dividend-paying companies have shown lacklustre performance so far in 2020.
According to figures from financial solutions provider Link Group, only half of the 15 highest dividend payers have announced a higher dividend than last year.
Due to the concentration of dividend payments among UK companies, this will significantly reduce the overall value of dividends paid out by the UK market. Payments from the 15 highest dividend payers typically account for three-fifths of all income paid out from UK listed companies. In 2019, this group distributed £55.7 billion, excluding special dividends, or £64.5 billion including specials.
Most companies not increasing their dividend payments will keep them at their current level. However, two, Vodafone (LSE:VOD) and RBS (LSE:RBS), have announced cuts.
As a result, says Michael Kempe, chief operating officer at Link Market Services:
“2020 looks likely to record the worst dividend growth rate in the last five years.”
Robin Geffen, a fund manager at Liontrust, has regularly warned of the danger of dividend concentration within the UK market. Such concentration of dividend payments could leave UK investors vulnerable if just a handful of companies decide to cut or hold dividend payments.
Kempe has similar concerns, noting that the UK market appears reliant on the ability of mining companies to increase dividend payments.
Both Rio Tinto (LSE:RIO) and BHP Group (LSE:BHP) have announced year-on-year increases. BHP Group was also responsible for a large increase in special dividends in the UK market last year.
This, however, means that UK dividend strength is overly reliant on a notoriously cyclical industry. As Kempe argues: “If anything, another strong performance from the mining sector highlights how UK dividend growth is precariously reliant on eye-catching increases from two or three big companies in a highly cyclical industry.
“It’s worth remembering that just four years ago, the mining sector slashed payouts by half to cope with a commodities downturn.”
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.