Reported by the latest Dividend Dashboard through AJ Bell (AJB), the FTSE 100’s outlook dividend pay-out has decreased from £91 billion in January to £62 thousand this month, while earnings cover for dividends holds worryingly thin.
That reduction would stand for a 17% fall inside pay-out in 2020 compared to the previous year after an 11% drop in 2019, leaving the sum at its lowest level since 2014.
CUTS, CANCELLATIONS & DEFERRALS
Every single quarter, AJ Bell takes FTSE 100 company forecasts in the leading City analysts and aggregates them to deliver the dividend outlook for every company.
Its latest Dividend Dashboard reveals the fact that blue chip benchmark currently gives the 3. 6% dividend deliver. That is after 48 with the market’s 100 largest firms by market value have got cut, deferred or terminated a dividend payment and also 49 have maintained or increased one for possibly fiscal 2019 or fiscal 2020.
The research illustrates that insurance giant Aviva (AV. ), M&G (MNG), the asset manager demerged from Prudential (PRU) this past year, and oil major BP (BP. ) are the three highest yielders inside index – all paying more than 10% – although the particular record of companies featuring juicy 10%-plus yields throughout actually making those obligations is poor.
RECOVERY AROUND 2021?
Russ Mould, investment director at AJ Bell, left a comment: ‘The FTSE 100 is expected to yield THREE. 6% for 2020, down from your 4. 7% the index was expected to yield at the start of the year. ’
He explains that dividend forecasts for any year have slumped by way of third thanks to the actual COVID-19 virus outbreak and dividend payments can be expected to fall for two consecutive years before commencing to forge a addiction recovery in 2021.
As stuff currently stand, some 46 FTSE firms are required to increase their dividend within 2020, with just 30 anticipated to cut all of them. However, the cuts are typically much deeper and appear from firms whose contribution towards the overall pot is so much bigger.
In a hit to income investors, the aggregate dividend payment through the blue chip benchmark’s position is forecast to excursion £12. 5 billion that will £62. 5 billion this season with just five firms in charge of the bulk of which cut.
COVER IS ‘STUBBORNLY THIN’
Clearly, dividend cover will be under ideal during an downturn in the economy as earnings come under pressure, yet today’s research also reveals which the aggregate earnings cover ratio with the FTSE 100 is simply 1. 4 times.
‘That equates to the 72% pay-out ratio as well as suggests that management teams in addition to analysts and shareholders are usually pinning their hopes on the second-half pick-up in economic activity and as a consequence profits and cash stream, ’ said Mould.
‘More encouragingly, analysts manage to think that boardrooms will not likely look to splash the amount of money too quickly if the great times do start to be able to roll, as earnings are forecast to grow faster than dividends within 2021. That would allow earnings cover to start out to move back to your 2-times threshold that delivers a safety buffer we’ve passed away of the unexpected – such as a pandemic, or even simply a common-or-garden economic downturn. ’CONCENTRATION CHANCE
Concentration risk has dogged those who have sought income from the uk stock market for a group of years. Just ten stocks are forecast to pay for dividends worth £34. 1 billion, or 55% with the forecast total for 2020.
BP’s status since the biggest single payer inside FTSE 100, according to consensus forecasts, presents investors with a particular conundrum. Rival Royal Dutch Covering (RDSB) has already lower its dividend and BP includes form here, having slashed its pay-out in 1992 and then again after 2010’s Gulf associated with Mexico oil rig disaster.
BP’s cash flow is under pressure due to falling oil and energy prices, new boss Bernard Looney’s prefer to reinvent the firm therefore it is ready for a low-carbon future, and net debt and that is way higher than ten years ago.
Mould says a slice would ‘not be the biggest surprise in the world’, despite Looney’s public recognition with the importance of the dividend to shareholders.