UK investors face more payout pain after Q2 divi slump

● Headline dividends slashed by 54% ● Cuts by BP signal tough quarter ahead

UK investors face a dividend drought after cuts by major companies including Lloyds and Shell saw total payouts more than halve in the second quarter of the year.

Analysis published today by investment manager Janus Henderson found payouts announced by Uk-listed companies dropped 54 per cent on a headline basis during the period.

Among the world’s larger stock markets, only France and Spain saw bigger declines during the period.

More than half of the UK companies included in the Janus Henderson global report cut or cancelled payouts. The headline fall was exacerbated by lower one-off special dividends, although at the underlying level the figure was down 41 per cent.

However, the report warned that the third quarter is likely to be severely impacted too, not least because BP has halved its dividend for the rest of the year.

“Several large UK companies had been paying out an excessively large portion of their profits as dividends for some time,” said the report.

“The pandemic is giving many of them an opportunity to reset investor expectations, which will make future payouts more sustainable.”

Atagloballevel,janushenderson said total payouts fell by $108.1 billion (£82bn) to $382.2bn, the lowest secondquarter total since 2012. The 22 per cent headline fall was easily the worst quarterly drop since the index started at the end of 2009 after the global financial crisis.

More than a quarter of Q2 payers cut their dividends, and more than half of this group cancelled them outright.

Looking ahead, Janus Henderson’s worst case outlook now sees a 23 per cent decline in payouts over the year, a slight improvement on previous forecasts.

Even so, 2020 will be the worst year for dividends since the global financial crisis.

Jane Shoemake, investment director of global equity income for Janus Henderson, said: “Most European companies pay just once a year in the second quarter, so a dividend cancellation has a disproportionately large impact on the annual total, but it also means 2021 should show a rebound in Europe.

“For the UK, the rebound will be smaller as several companies, not least oil giants Shell and BP, have taken the opportunity to reset their payouts at a lower level. This is where the benefits of taking a globally diversified approach to income investing becomes clearest.”

Despite what Janus described as a quarter of “astonishing disruption to normal life around the world,” Shoemake still expects global dividends to exceed $1 trillion this year and next.

“A temporary halt in dividends does not change the fundamental value of a company, though it can affect short-term sentiment, and it remainsimportantforincome investors to be diversified both by geography and sector,” she said.