FTSE 100 dividends paid and restored now exceed value of cuts since the pandemic began

Lily James, Carey Mulligan and Ralph Fiennes may be gripping the nation in the Netflix film The Dig, but it is treasure of a different kind that is keeping investors interested in the UK stock market, after a bumper month for dividend payments in February, says Russ Mould, AJ Bell Investment Director.

“Payment declarations came to £14.6 billion, while a further £5.2 billion worth of dividends were restored, against just £2.7 billion of cuts. A further three firms – Hays, Avingtrans and Beazley – also declared their intention to restore dividends shortly, to further boost the income received by investors in the UK stock market.

“The aggregate of dividends paid and restored has also now exceeded the value of those cut or cancelled over the past 12 months, to suggest that companies really do feel the worst may be behind us, in terms of the pandemic and the economic downturn.

“Share buyback activity picked up, too, putting a little more cash in investors’ pockets. A dozen companies announced new buybacks schemes in February, with a value of almost £1.5 billion – and Berkeley and Rightmove have yet to quantify the amount of stock that they intend to purchase.

“While there is no denying that the economic backdrop is a very difficult one, income-seekers have at least passed a key test this month, since BP and Shell paid out dividends that were lower than those of a year ago. That weighed heavily and the oil majors represented more than 90% of February’s total dividend reduction between them, with Evraz the only other FTSE 100 member to prune back its distribution, on a year-on-year basis.

“The good news is that Shell cut last April and BP last August, so the base for comparison gets easier for the next quarter or two, before the bar starts to rise once more.

“The miners led the charge, with big increases in pay-outs in February at BHP, Anglo American and Rio Tinto. Rio also declared a special dividend.

“All of the Big Five banks returned to the dividend list, too. However, only HSBC exceeded expectations with its $0.15-a-share payments and NatWest, Barclays and Standard Chartered all undershot analysts’ forecasts.

“As a result, it looks like the miners became the single-biggest dividend paying sector within the FTSE 100 in 2020. Polymetal, Fresnillo and Antofagasta’s dividend declarations for 2020 will have a say but it is the diggers who really are unearthing the treasure now for investors in UK equities, especially as the current surge in raw material and metals prices bodes well for their 2021 payments, too.”