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Highlights
- UK dividend cover is very low as compared to global average, as per Henderson International Income Trust.
- In 2020, there was a 12% global reduction in dividend payout, while this figure stood at 41% in the UK.
- Dividend cover in the UK dropped down to 0.3x in 2020 as the UK firms paid out their profits in dividends before the arrival of the pandemic.
A recent report by Henderson International Income Trust has stated that UK companies listed on London Stock Exchange are more exposed to market shocks as compared to global companies. In 2020, there was a 12% global reduction in dividend payout, while this figure stood at 41% in the UK, but it still remained more vulnerable to shocks.
Firms usually slash their annual payout in case dividend payment becomes unaffordable for them. During the pandemic, around 87% of income investors faced losses due to dividend cuts, as per the Association of Investment Companies. Investors should thus check the profit predictions for the next year to ensure that the companies they have invested in will be able to cover the dividend payout. This investing yardstick, dividend cover, is very popular among investors, and its value should ideally be 2.0 or above.
In 2020, the global dividend cover fell to 1.8x from 2.2x in 2019, hitting its lowest level since 2008. Nevertheless, the dividend cover will rebound to 2.1x in 2021, touching 2.4x next year.
As per Henderson International Income report, dividend cover in the UK dropped down to 0.3x in 2020, which is very low as compared to other regions due to UK firms paying out their profits in dividends prior to the emergence of the pandemic. Last year, all major UK sectors faced a decline in the dividend cover, except for the financial sector. UK’s dividend cover will rebound soon but it is still expected to remain below the global average, as suggested by the report. It is expected to be 1.0 in 2021 and 1.1x in 2022. However, according to the manager of the trust, Ben Lofthouse, this dividend cover trend doesn’t indicate that the UK isn’t a worthy place for investors to look for dividend income.
RELATED READ: 7 FTSE companies that reinstated dividends this year
Let’s take a look at some of the UK dividend-paying stocks that investors can go for.
BHP Group PLC (LON: BHP)
BHP Group PLC is into production of iron ore, copper, and nickel. The current market cap stands of the FTSE-100 listed company stands at £41,713.42 million and it has given a return of 20.25% in 1 year. Its average dividend per share stands at GBP 2.10 and its 5-year average dividend yield is 5.3%. BHP Group PLC’s shares were trading at GBX 1,960.80 as of 12 November 2021.
Rio Tinto plc (LON: RIO)
Rio Tinto plc is the second-largest metals and mining corporation after BHP. The current market cap of the FTSE-100 listed company stands at £57,371.34 million and it has given a negative return of 3.58% in 1 year. Its average dividend per share stands at GBP 7.78 and its 5-year average dividend yield is 5.6%. Rio Tinto plc’s shares were trading at GBX 4,562.50 as of 12 November 2021.
RELATED READ: Why should people invest in Dividend paying stocks?
Evraz plc (LON: EVR)
Evraz plc’s current market cap of the FTSE-100 listed company stands at £9,242.26 million and it has given a return of 67.39% in 1 year. Its average dividend per share stands at GBP 1.04 and its 5-year average dividend yield is 10.7%. Evraz plc’s shares were trading at GBX 620.00 as of 12 November 2021.
Persimmon plc (LON: PSN)
Persimmon plc’s current market cap of the FTSE-100 listed company stands at £8,682.72 million and it has given a negative return of 2.97% in 1 year. Its average dividend per share stands at GBP 2.35 and its 5-year average dividend yield is 7.7%. Persimmon plc’s shares were trading at GBX 2,727.00 as of 12 November 2021.
British American Tobacco PLC (LON: BATS)
British American Tobacco PLC is a constituent of the FTSE 100 index. Its current market cap stands at £59,443.07 million and it has given a negative return of 6.34% in 1 year. Its average dividend per share stands at GBP 2.18 and its 5-year average dividend yield is 5.8%. British American Tobacco PLC’s shares were trading at GBX 2,613.00 as of 12 November 2021.
