UK dividends will have fully recovered by 2022

There are reasons to be positive about the future of UK dividends as companies start recommencing payments, according to AXA IM portfolio managers Geroge Luckraft and Simon Young.

On companies that had previously deferred payments, George Luckraft, Portfolio Manager of the AXA Framlington Monthly Income Fund said “As we go through the year, I expect companies which weren’t as affected by conditions during the crisis may pay some of their deferred dividends. This is a trend we are starting to see with Rotork, St. James’s Place and Sabre Insurance to name a few, announcing in their latest quarterly reports that they would pay previously deferred dividends. Therefore, I think there will be a pick-up in news later in 2020. 

“However, returning to previous levels will take some time. We would not be surprised if UK dividends fall by 40-50% overall when we look back over 2020. We have already seen well-known companies reduce their payments by more than this, for instance Royal Dutch Shell cut its dividend by two-thirds and BP halved its payout. Companies who might be facing difficulties are taking a pragmatic approach with their dividend to ensure their balance sheets are strong and that they are concentrating on liquidity.   

"We expect that 2021 will be a better year for dividends and it is our view that we will see a fuller recovery in 2022." 

Simon Young, Portfolio Manager of the AXA Framlington UK Equity Income Fund, added: “At the start of the crisis, the Treasury and the Bank of England rightly provided assistance to consumers and businesses through polices such as the furlough scheme, bounce-back loans or business interruption loans. As a result of accepting this intervention, which avoided a much more dire economic situation, recipient companies have understandably deferred or cancelled their dividends. 

"As well as this, there has been regulatory pressure to cut dividends. The banking regulator, the Prudential Regulation Authority (PRA), wrote to the major UK banks requesting they cancel dividend distributions at the end of March. 

“Most sectors have started to see a rebound in demand but undoubtedly this crisis will exacerbate and accelerate structural changes that were already underway. Online shopping, working from home, and the likelihood of a prolonged period of rock bottom interest rates will impact the retail, commercial property and financial services sectors for a number of years to come. It is hard to see dividends rebounding fast across the board in these sectors given these pressures.  

 "The good news for dividends comes in sectors where demand has remained robust such as utilities and the majority of the consumer staples companies. While mining companies have benefitted from rising commodity prices and motor insurers have experienced fewer accidents as less people have commuted to work. These pockets of strength will not have the power to offset the widespread cuts in dividends, but will help cushion the blow, especially for funds with exposure to them.”  

Contacts

Ellis Ford

+44 20 7003 1225

Ellis.Ford@axa-im.com

Jamie Wynn-Williams

+44 20 7003 2680

Jamie.Wynn-Williams@axa-im.com

Hélène Caillet

+33 1 44 45 88 06

Helene.Caillet@axa-im.com

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