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Summary
- UK companies paid just £18bn to shareholders in Q3 2020 as dividends, which was less than 50 per cent compared to Q3 2019.
- UK companies’ Q3 dividend payouts were the lowest in the last ten years but are slightly better than Q2 2020 which saw a drop of 60 per cent.
- Despite the pandemic and slowdown, some of the companies have maintained their dividends
The year 2020 has been one of the most difficult periods for most of the companies in the UK. The sudden drop in economic activities across the country in the wake of the coronavirus pandemic saw a sharp dip in the revenue of companies across sectors. UK companies paid £18bn to shareholders in Q3 2020 as dividends, which is 49.1% lower than the Q3 2019 and the lowest amount paid in a third quarter since 2010's £16.9bn.
The fall in revenue led to a severe cash crunch which forced most companies to conserve as much cash for the uncertain future. Thus, many mid-cap and large-cap companies in the UK, which regularly paid dividends, cancelled the payouts in Q3 2020. Also, the new dividends which firms had announced were also withheld.
The Q2 2020 saw one of the lowest dividends’ payout ratios in many years. The payouts fell by nearly 60 per cent compared to the same period the previous year. In the Q3, the dividends fell by nearly 50 per cent compared to the same quarterly period last year.
Dividend payouts in 2020
Many large companies withheld their dividends this year due to the uncertainties around the pandemic. Among the largest companies that cancelled or deferred dividend payments were -- HSBC Holdings plc, which had to make a dividend payment of £5 billion, BT plc went down on its dividend of £3.3 billion, Glencore plc withheld its dividend payment of £2.1 billion.
While Royal Dutch Shell went back on its dividend declaration of £1.07 billion, Lloyds Bank plc withdrew its dividend commitment of £1.57 billion, Barclays Plc withheld its £1.03 billion and Royal Bank of Scotland shied away from its dividend commitment of £967 million.
The mid-sized and smaller companies that have deferred their dividends are ITV, which deferred payment of dividends worth £216.2 million. Micro Focus International deferred a dividend payment of £165.1 million. Kingfisher Plc deferred a dividend payment of £158 million. Marks and Spencer plc deferred a dividend payment of £132.6 million and Intercontinental Hotels plc deferred a dividend payment of £120.4 million.
However, there have been companies that have maintained their dividends during the year. Top companies that have paid their commitments are BP Plc, which made a dividend commitment of £1.7 billion. Vodafone plc committed to pay £1 billion, GlaxoSmithKline plc committed to pay £953 million, Legal & General committed to pay £754 million, Diageo plc made a dividend commitment of £702 million and SSE plc made a dividend commitment of £582 million.
One of the major factors which influenced the low dividend payouts this year was FCA’s note to banks which directed the banks to defer the payouts and share buybacks to conserve cash for the government stimulus loan schemes.
2019 vs 2020
The year 2019 was quite different from 2020 in terms of dividend payments. 2019 was a good year for shareholders as many records were broken in terms of dividends. Last year, the dividends paid out grossed more than £110 billion, which was over 10 per cent more than the amount in 2018.
This year so far, the dividend payouts in the UK are in a deep draught. There could be some improvement in the dividend situation in the Q4 of the year, but it would only be marginal due to the pandemic.
Dividends in 2021
The improvement in the dividend payments in 2021 will highly depend on how the economy recovers after the winter resurgence of the pandemic. Ireland and Scotland are already under lockdown, and several other localities in the UK have imposed enhanced restrictions to contain localized spreads.
The vaccine which is expected to hit the market sometime next year. But if we consider all factors, it will take at least till the middle of next year before the situation comes to be normalized. Thus, the dividend situation will remain under pressure at least in the first half of the year.
Share performance of top three dividend payers in 2020 (YTD)
- BP plc: The company (LON:BP) is the UK-based multinational oil and gas firm. It is active in all three upstream, midstream and downstream in the industry, and also in new energy verticals like Solar power, wind power and biofuels.
Source- Thomson Reuters
As on 23 October, the share of BP plc has been trading at GBX 207.40 (9.32 AM GMT+1), gaining 3.00 per cent over the previous day’s close.
- Vodafone plc: The company (LON:VOD) – Vodafone Group Plc is a British multinational telecommunications company. It principally operates in Europe, Asia, Africa and Oceana.
Source- Thomson Reuters
As on 23 October, the share of Vodafone plc has been trading at GBX 110.48 (9.33 AM GMT+1), gaining 1.58 per cent over the previous day’s close.
- GlaxoSmithKline plc: The company (LON:GSK) is a UK-based global pharmaceutical major. The firm’s portfolio of products includes prescription therapeutics, medicines, and vaccines.
Source- Thomson Reuters
As on 23 October, the share of GlaxoSmithKline plc has been trading at GBX 1336.71 (9.34 AM GMT+1), gaining 0.26 per cent over the previous day’s close.
