More than four fifths (87%) of income investors have been impacted by a loss of income in their investments due to the pandemic, according to research from the Association of Investment Companies (AIC) conducted by Research in Finance.
In the AIC’s survey, more than a quarter of income investors (28%) reported a ‘considerable’ or ‘big’ impact to their portfolios. However, this is down from 41% last year highlighting the improving outlook for income investors.
Fewer than one in ten (9%) income investors have had to re-think their future plans or lifestyle in response to dividend cuts, down from 17% last year. Of these, 41% have had to cut back on non-essential items or activities (down from 63% in 2020), 22% have had to change or cancel holiday plans for financial reasons (39% in 2020) and 16% have had to delay their retirement (19% in 2020).
What changes have income investors made to compensate for the loss of income?
(Base: those who have changed plans or lifestyle)
However, a positive outlook is emerging from the majority (91%) of income investors who haven’t yet had to change their plans or lifestyle. Of these investors, 40% believe they won’t have to make changes even if businesses continue to pay lower dividends. A further 30% say they could maintain the same lifestyle for three years before any changes would need to be made.
In the second quarter of 2021, global dividends grew 26% year-on-year but remain 7% lower than pre-pandemic levels according to Janus Henderson’s Global Dividend Index.2 UK dividends fell 41% in 2020 and dividends globally were 12% lower in 2020 than 2019.
Portfolio changes to compensate
Almost half (45%) of income investors who have been impacted by dividend cuts are accepting a lower income for the time being, while 29% have made changes to their portfolio to address the loss of income.
Zooming in on the 29% who have made changes to their portfolio, 56% of this group have looked for different income-producing investments such as investment companies or bonds, almost half (45%) have moved into growth investments, 40% have reduced exposure to investments which have cut dividends and 32% have topped up investments more likely to pay dividends.
Leave a Comment