Has income turned a corner?

The story of dividends in 2020 is well known. Hit by pandemic-induced lockdowns and a once-in-a-generation economic dislocation, the big dividend names of the income world more or less shut up shop from March onwards.

In the UK alone, more than half of the Financial Times Stock Exchange (FTSE) 100 Index firms cut, deferred or cancelled over £37 billion (approximately S$68.7 billion) of dividend payments in response to the Covid-19 crisis.¹

In the US, 42 companies in the Standard & Poor’s (S&P) 500, mostly in the hotels, airlines and retail segments, suspended dividend payments from March through July.²

A difficult year for dividends. But have we turned a corner?

Source: Societe Generale, Dec 18, 2020.

But that was 2020, and with a new year comes new hope.

Already, developments are encouraging. In December, for instance, regulators allowed the UK’s biggest banks to resume dividend payments.

Meanwhile, the rollout of effective vaccines brings the end of the pandemic ever closer. For the first time in a long time, companies are beginning to look to the future with a sense of optimism.

According to Mr Jon Bell of BNY Mellon Investment Management’s income team, a return to business confidence could be the defining factor of 2021.

For management teams, it would mean enhanced visibility into the end of this recession, and could also be the catalyst for the reinstatement of both forward-earnings guidance and dividends, reversing some of the cuts seen this year.

“In short,” says Mr Bell, “it means the beginning of a return to economic normalisation.”

He describes recent dividend trends as positive, observing, for instance, that within the Global Income portfolio, companies like Inditex and Ferguson – which had previously suspended their dividends ⁠– have announced a resumption of payments.

Elsewhere within the portfolio, Mr Bell notes that the latest news flow on Richemont and Informa – two strong recent performers in the portfolio – has been encouraging, with both companies expected to resume paying a premium level of income within a reasonable time frame.

“Income will return,” he concludes.

“However, not all companies will be able to restore dividends to previous levels, as the pandemic has accelerated some of the key themes that were already in place.”

¹This is Money: ‘The top dividend payers of 2020: Income from FTSE 100 firms was slashed 20%, but these 16 blue-chips are paying out’, Dec 14, 2020
²The New York Times: ‘Dividends Are Down, but They Are Vastly Better Than Expected’, Nov 20, 2020

Important information:
Not for further distribution. This is a financial promotion and is not investment advice. Any views and opinions are those of the investment manager, unless otherwise noted. The value of investment can fall. Investors may not get back the amount invested. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries. In Singapore, this document is issued by BNY Mellon Investment Management Singapore Pte. Limited, Co. Reg. 201230427E. Regulated by the Monetary Authority of Singapore (MAS). This advertisement has not been reviewed by the Monetary Authority of Singapore. BNY Mellon Investment Management Singapore Pte. Limited and any other BNY Mellon entity(ies) mentioned are ultimately owned by The Bank of New York Mellon Corporation. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries.

GE214726 Exp: April 13, 2021

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