Dividends recover in 2021

Last year many companies were forced to cut or suspend dividend payments. This year, the reverse is happening and dividends are generally on the up.


Source: Link Asset Services

Many income-seeking investors would prefer to forget 2020. Global interest rates stayed around zero while many companies cut or suspended dividends. According to one leading international investment manager, the average fall in global dividends in 2020 was 12.2%.

The UK was particularly hard hit. Between 2019 and 2020 the total value of dividends (regular and one-off) paid by UK companies dropped by 43.1%. From April 2020 to December 2020, nearly a third of UK companies cancelled their dividends, while close to another quarter cut them.

In 2021, the clouds are lifting. The Bank of England has allowed UK banks to resume dividend payments. Other companies that suspended dividends have begun making payments again. Even Shell, which cut its quarterly dividend from 47¢ to 16¢ in June 2020, has started to increase its quarterly payments.

Link Asset Services, one of the largest share registrars in the UK, has estimated that in its best-case scenario, regular dividend payments will rise 5.6% in 2021. Its worst-case scenario is still positive, with dividends rising by just 0.9%. Link says that “companies are increasingly declaring dividends in line with our best-case scenario as the economy comes back to life and constraints on pay-outs are lifted”.

If you want to invest in the UK equity income sector and potentially benefit from rising dividends, please ask our advice on the wide range of funds available. You might also consider overseas equity income funds. As 2020 showed, international diversification can be a wise strategy.

The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.  

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

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