Worst-Case Scenario Offers Bright Outlook for Post-Pandemic UK
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INVESTMENTINSPIRING & INFORMING INVESTMENT PROFESSIONALS FOR 25 YEARS investmentweek.co.uk WEEK 3 May 2021 Worst-case scenario off ers bright outlook for post-pandemic UK dividends BY JAMES BAXTER-DERRINGTON strong dividend growth in the UK dividends full year basis (inc. special dividends) coming years.” Investors are anticipating the return of bumper special 130 Impact of special dividends dividends and payouts from £bn Many other sectors are set to pay the banking sector amid an 110 better than expected dividends improving outlook for income in for the coming year, with media, 90 the UK equities market. insurance, telecoms, building The worst-case scenario for 70 materials, utilities and mining the UK dividend market in 2021 all exceeding Link Group’s initial now sees payouts rising by at 50 predictions. Mining payouts are least 0.9% this year, with the looking particularly strong with best-case envisioning a rise of 30 commodity prices driven higher 5.6%, according to the latest Link 2015 2016 2017 2018 2019 2020 2021 2021 by the global economic recovery Group UK Dividend Monitor. best case worst case and the big miners utilising Only last quarter, Link was still special dividends to “pass on anticipating a decline of 0.6% in declaring dividends in line with Q2 will see HSBC distribute bumper profits”. the worst case, but with plenty our best-case scenario as the roughly £2.2bn to investors, more BHP Group shelled out of companies paying best-case economy comes back to life and than twice as much as all the enough in Q1 to rank as the third predictions over the first quarter, constraints on payouts are lifted,” other banks combined, and from largest payer, while Rio Tinto is the gap has narrowed between said Ian Stokes, managing director 2022 the global banking giant will anticipating distributing close to the top and bottom forecasts. of corporate markets, EMEA at update its policy to pay between £800m back to shareholders in Q2. As this gap continues to Link Group. 40% and 50% of profits each year A combination of reduced close and the UK emerges from as a dividend. demand for energy and large lockdown restrictions, the group Return of banking While the return of banking special dividends has seen Royal hopes to entirely do away with the The coming quarter will see dividends is welcome, Stokes Dutch Shell lose its dividend best- and worst-case scenarios one of the most important noted that they will only register crown for the first time in more and resume its single forecast payout constraints lifted as the between 25% and 40% of their than half a decade, with the oil for UK payouts by the end of Q2, banking sector returns to paying pre-pandemic levels as some company slipping to eighth spot, highlighting the greater clarity and dividends, although Investec has regulatory constraints remain replaced by Tesco as the top payer. predictability in the market. already blazed a trail, dishing out in place, keeping 2021 payouts The supermarket is unlikely “Companies are increasingly its dividend in Q1. from the sector lower than to be seen in this spot again as “initially hoped”. the “enormous” one-off payment John Teahan, portfolio was issued as a result of Tesco Q1 dividends top companies manager of the RWC Partners offloading its Asian operations, Equity Income fund, said the but the sale boosted UK Q1 Rank 15Q1 16Q1 17Q1 18Q1 19Q1 20Q1 21Q1 “precautionary approach” to special dividends to their second- Royal Dutch Royal Dutch Royal Dutch Royal Dutch Royal Dutch Royal Dutch 1 Shell Shell Shell Shell Shell Shell Tesco bank dividends during 2020 was highest total on record, with the right move and saw the sector £6.1bn distributed. 2 AstraZenecaAstraZenecaAstraZenecaAstraZeneca BHP Group AstraZenecaAstraZeneca play a very different role to 2008. Adam Vettese, analyst at eToro, 3 BP BP BP BP AstraZeneca BP BHP Group “Banks in this crisis have been said that despite Shell’s share firefighters, rather than being price sitting “significantly lower British British Vodafone Vodafone Vodafone Vodafone part of the problem. They were than two years ago, at barely 4 Group Group Group Group BP American American Tobacco Tobacco very much part of the efforts to half the value”, the oil major’s British Vodafone Vodafone protect jobs and businesses, first quarter was a positive one, 5 GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline American BHP Group Tobacco Group Group both as a conduit for government reporting earnings ahead of support and through their own expectations and raising its Subtotal £6.6 £7.5 £8.7 £7.8 £10.1 £8.6 £10.6 (£bn) forbearance actions,” he said. quarter-on-quarter dividend. % of total 48% 51% 54% 45% 50% 50% 56% “We are now seeing dividends dividends SOURCE: LINK UK DIVIDEND MONITOR DIVIDEND UK LINK SOURCE: troughing and look forward to Continued on page five 001_IW_030521.indd 1 29/04/2021 16:07 Fig. 1: A clean energy PROFIT Fig. 2: A revolutionary tech PROFIT Fig. 3: A healthcare innovation PROFIT The new Positive Future Fund. Seeking out Profits that will change the world for good. 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A274621_PosFuture IW_271x203.indd 1 06/04/2021 13:04 2 3 MAY 2021 0002-003_IW_030521.indd02-003_IW_030521.indd 2 229/04/20219/04/2021 111:461:46 3rd May 2021 Volume XXVI Issue Tel: Unless specified, prefix numbers with 020 7484... Email: [email protected] INVESTMENT editorial Editor-in-chief Katrina Lloyd 9838 Editor WEEK Lauren Mason 9942 Deputy editor (maternity leave) Beth Brearley 9761 Acting news editor Mike Sheen 9966 Senior asset management correspondent Pedro Gonçalves 020 3727 9937 Asset management correspondent James Baxter-Derrington 9771 Bumpy year for EM favourites production Production editor Rachel Bird 9760 After a short spell at the tail markets at a time of uncertainty.” Art editor/infographics Rachel Steele 9905 end of last year where investors Despite the fact onshore Digital production editor predicted a change in fortune for Chinese equities are Ravi Meah 9820 Advertising production manager emerging market equities, market underrepresented in global Maria Pelton 9823 participants have arguably been left indices, and are largely avoided by media advisers disappointed in 2021 so far. equity investors, according to 7IM’s Head of sales Mick Hrabe 9889 According to data from FE Ben Kumar, “most of the world’s Account manager fundinfo, the MSCI World index has economic expansion over the next Naomi Howell 9259 Key account manager comfortably quadrupled the returns few decades will be in China”. Julia O’Brien 9913 of the MSCI China and India indices “The companies will not be circulation year-to-date, which are up just 0.6% familiar to those in the West, but with Please contact subscriptions on 20 7484 9800 and 1.5% respectively. This comes 0 or email Lauren Mason a potential consumer market of [email protected] despite the fact China was one of the 1.4 billion people, they do not need Editor uk/wholesale events few economies to achieve positive to be to make money,” he pointed out Commercial director Natasha Buckle 9791 growth last year thanks to an earlier on page 21. events recovery from the coronavirus pandemic. Another equity market that has long been Events managing director But perhaps this is due to investors’ attention favoured for its growth prospects, but struggled this Simone Broadhurst 9798 Head of marketing and delegate relations being focused elsewhere for the time being, year, is India. Elena Simmons 9972 with previously-cheap UK equities experiencing The country, which originally appeared to be Head of event operations Zara Bailey 9920 a bounceback due to greater Brexit-related relatively unscathed by Covid, is suffering a torrid general certainty and a successful ongoing vaccine second wave of the illness, with its death toll now CEO roll-out programme. surpassing 200,000, while it has recorded more Jonathon Whiteley 9745 Managing director There are also push factors rather than pull Covid cases than anywhere else in the world over Kevin Sinclair 9891 factors at play, according to Tavistock’s CIO John the last seven days. Email [email protected] Leiper on page 23 of this week’s magazine. As can be seen on page 5, however, Mobius Subscriptions “China is at a different point of the economic UK £200, Europe £220, ROW £240 Capital Partners’ Mark Mobius remains positive Reprint and e-prints cycle,” he reasoned. “Having handled the pandemic on the country’s long-term growth story, with a Richard Coury, Media Licensing Co, The Grange, 3 Waverley Road, Farnham, far better than many of its peers, policymakers are number of his portfolio’s holdings benefitting from Surrey, GU9 8BB. Tel: 020 3773 9320 now normalising monetary policy at a faster rate the pandemic over the last year, particularly those Email: [email protected] than elsewhere, sapping liquidity from markets.” in the healthcare sector.