Half of UK companies increased, restarted or held their shareholder payouts steady between January and March, compared with just a third in the final three months of 2020, signalling the beginnings of corporate recovery from the shock caused by Covid-19.
Dividends paid to investors fell by almost 27% to £12.7bn, excluding one-off specials, in the first quarter, compared with a year earlier, according to the financial data firm Link Group, marking the slowest rate of decline since the start of the pandemic.
Shareholder payouts collapsed by almost 50% between April and June 2020 as UK companies felt the effects of the pandemic and moved to preserve cash. Link Group does not expect dividends to return to 2019 levels until 2025.
However, investor payouts have declined at a slower rate during each successive quarter, according to Link Group’s UK dividend monitor, since the first wave of coronavirus hit the UK last spring.
Companies including housebuilder Persimmon and insurance group Aviva made the biggest contribution to first-quarter dividends. Persimmon fully restored its interim payout, worth £398m, despite reporting lower annual profits in 2020, while Aviva unveiled an extra interim dividend to help to make up for the pause in 2020.
Investec became the first bank to restart its payouts in the first quarter, after the Bank of England gave lenders permission to reinstate dividends from January, ending the temporary ban on shareholder payouts from Britain’s largest banks.
The first quarter of 2021 saw the second highest total on record of one-off special payments to investors at just over £6bn, driving an almost 8% jump in headline dividends.
Tesco accounted for most of the special dividend total, thanks to the proceeds of its disposal of its Asian operations, while mining companies BHP and Ferrexpo also paid special dividends.
However, some companies stuck with dividend reductions or suspensions, totalling £5.8bn of cuts during the quarter, about half of which came from the oil sector, as well as from firms including BT, airline easyJet and the owner of Primark, Associated British Foods (ABF).
For investors, “green shoots are already sprouting,” said Ian Stokes, managing director of Corporate Markets EMEA, part of Link Group, but he cautioned that the second quarter would herald big changes.
“During the pandemic, many companies that had been overdistributing permanently reset their dividends to more sustainable levels,” Stokes said. “Most of these now hope to grow their dividends from this lower base. For others, the effect of the cuts is more transitory, so they will bounce back quickly.”