As few as ten firms could pay out two-thirds of FTSE 100’s 2020 dividends, according to broker data.
Almost 32 companies out of 100 have already announced they will cut, suspend or deferred dividend payments due to stalled economic growth caused by the coronavirus outbreak representing around £25bn of lost income for investors.
Firms such as Aviva, RSA, Whitbread and ITV (which makes Saturday Night Takeaway presented by Ant McPartlin and Declan Donnelly, pictured) said this month they were cancelling their dividends for 2019 and would not consider further payouts until the end of the year.
This follows a warning in March by the Bank of England that the insurance industry should scrap planned payouts to conserve cash, after pushing UK banks – such as Barclays and Lloyds Banking Group – to do the same.
Picking dividend winners
However, supermarket chain Tesco said it would pay its £635m final payment earlier this month. Diageo and Legal & General have both said they will honour their plans to make payouts to investors. Royal Dutch Shell and BP, two stocks that feature heavily in the portfolios of income investors, have both issued trading statements which emphasise how cuts to cost cuts, asset disposals and fresh debt leaves them with enough cash to make payouts should they decide to do so.
AJ Bell investment director Russ Mould said: “As income-seekers do their research as to what the yield on the FTSE 100 might be in 2020, they can cut the field down pretty quickly when it comes to which firms now really matter.”
He added: “The starting point that a third of the FTSE 100’s members make no dividend payment at all offers some sort of downside protection so attention must then focus on the largest payers.”
In order to find the dividend yield of the FTSE 100 index for 2020 Mould assumed three scenarios for the largest blue chip dividend payers:
- The FTSE 100’s dividend yield would be around 2.7% if only 10 firms are forecast to pay out £42bn in dividends in 2020.
- The dividend yield would increase to 3.1% if just 15 firms are forecast to pay out £49bn in dividends in 2020.
- The dividend would stand around 3.4% if 20 firms are forecast to pay out £54bn in dividends in 2020.
| 2020 E | |||||
| Dividend (£ million) | Dividend as % FTSE total | Dividend yield (%) | Dividend cover (x) | ||
| 1 | Royal Dutch Shell | 11,906 | 18.6% | 10.6% | 0.64x |
| 2 | BP | 6,647 | 10.4% | 10.2% | 0.54x |
| 3 | British American Tobacco | 5,087 | 7.9% | 7.6% | 1.53x |
| 4 | GlaxoSmithKline | 4,014 | 6.3% | 5.1% | 1.43x |
| 5 | Rio Tinto | 3,168 | 4.9% | 6.6% | 1.62x |
| 6 | AstraZeneca | 2,939 | 4.6% | 2.9% | 1.46x |
| 7 | Vodafone | 2,369 | 3.7% | 7.3% | 1.04x |
| 8 | BHP Group | 2,102 | 3.3% | 7.6% | 1.54x |
| 9 | Imperial Brands | 1,964 | 3.1% | 12.8% | 1.26x |
| 10 | Diageo | 1,818 | 2.8% | 2.7% | 1.76x |
| 11 | Unilever | 1,799 | 2.8% | 3.7% | 1.52x |
| 12 | National Grid | 1,758 | 2.7% | 5.6% | 1.22x |
| 13 | Reckitt Benckiser | 1,286 | 2.0% | 2.7% | 1.68x |
| 14 | Legal and General | 1,118 | 1.7% | 8.9% | 1.76x |
| 15 | Anglo American | 1,053 | 1.6% | 5.4% | 2.49x |
| 16 | BT | 997 | 1.6% | 8.1% | 2.23x |
| 17 | Prudential | 954 | 1.5% | 3.6% | 3.97x |
| 18 | Tesco | 902 | 1.4% | 3.9% | 2.00x |
| 19 | RELX | 883 | 1.4% | 2.6% | 2.08x |
| 20 | SSE | 860 | 1.3% | 6.7% | 1.22x |
Source: Sharecast, consensus analysts’ forecasts, Refinitiv data
Mould said: “Investors will therefore have to keep doing their research on these 20 firms in particular if income is their primary aim. But their analysis will need to go beyond earnings cover, cash flow, the debt and pension and lease obligations on balance sheets and the maturity timeline of any borrowings and take into account any assistance received during the current crisis and how front-line staff are being rewarded for helping to keep the show on the road.”
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