FTSE 100 dividends tipped for 18% rebound in 2021


Dividends from the UK’s largest listed companies are set to rebound in 2021 according to the latest bit of research from wealth manager AJ Bell PLC (LON:AJB).

This year has been grim so far for income seekers, as the impact of COVID-19 has seen payouts slashed across the board, but there has been a bit pre-Christmas cheer as the number of Footsie companies restoring their payments has begun to pick up.

So far in 2020 £14.7bn or 20% has been wiped off payouts compared to 2019, says AJ Bell, but recently fifteen FTSE100 firms have now either restored the payout or said they will in 2021, which amounts to £2.7bn with four yet to quantify how much they pay.

Russ Mould, AJ Bell’s investment director, said  “That £2.7 billion figure is still dwarfed by the value of the cuts announced in calendar 2020 but it nevertheless underpins the improved momentum in overall FTSE 100 dividend forecasts.”

“As a reflection of this gathering optimism, dividend forecasts for the year (2020) have increased by 6% in the fourth quarter to £59.9 billion from £56.6 billion in September.

“Although this is a long way down from the £91.1 bn forecast of a year ago and dividend payments are now expected to fall for two consecutive years before starting to recover in 2021.”

The forecast for 2021 is for an 18% increase in FTSE 100 dividends (£10.9bn) to £70.8bn.

Mould also points out that some yields now available in FTSE 100 stalwarts remain eye-catching.

British American Tobacco PLC (LON:BATS) is paying 7.9%, BP PLC (LON:BP.) a similar amount while Vodafone, Rio Tinto and GlaxoSmithKline all yield around 6%.

Imperial Brands PLC (LON:IMPS) is the biggest yielder, however, with the tobacco group standing at 9.4% currently with similar amount likely to be paid out in 2021.

“What also catches the eye in the list of biggest payers is how Imperial Brands still offers a yield of more than 9%, with earnings cover of almost two times, even after its cut in 2020.

“This may reflect investor scepticism that the dividend is truly safe over the long-term, amid wider regulatory pushback against smoking.

“BP and BAT offer yields of nearly 8%, the former as investors ponder whether even this is affordable as the oil major looks to reinvent itself and the latter as it faces the same challenges as Imperial.”


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