The FTSE 100 is still expected to yield 3.6% in 2020 despite close to half the companies slashed almost £30bn from forecast dividends for the year.
Earnings cover for dividends is still thin at 1.40 across the index, according to quarterly research by AJ Bell, which suggests there could be further cuts later in the year.
Furthermore, around three-quarters of the index’ expected dividends for the year are concentrated in just 20 companies, not all of which have the most reliable record for keeping their payout intact.
READ: Shell and BP's days as dividend paying leviathans look numbered says analysts
BP PLC (LON:BP.), for example, is now expected to be the biggest single dividend payer and analysts are undecided over whether it is likely to trim its payout soon.
At the start of the year, some £91bn of dividends were being forecast for the year ahead, but after 48 companies cut, deferred or cancelled payments, the research shows the analysts have severely trimmed this down to close to £62bn.
If these forecasts are fulfilled this would represent a 17% fall in the total Footsie payout for 2020 versus 2019 after an 11% drop in 2019, leaving the total at its lowest level since 2014.
But a 3.6% dividend yield for the FTSE 100, while down from the 4.7% the index was expected to yield at the beginning of the year, is a lot better than most bank accounts offer.
However, Russ Mould, AJ Bell’s investment director, said investors “should assess the concentration risk which has dogged those who have sought income from the UK stock market for some years”.
This comes from just ten stocks being forecast to pay dividends worth £34.1bn, or 55% of the forecast total for 2020, with the top 20 companies expected to generate 74% of the total index’s pay-out, at £45.8bn.
“Anyone who believes the UK stock market is cheap on a yield basis, and looking to buy individual stocks, glean access via a passive index tracker or buy a UK equity income fund needs to have a good understanding of, and strong view on, those 20 names in particular,” says Mould.
Aviva PLC (LON:AV.), M&G PLC (LON:MNG) and BP are the three highest yielding stocks in the index – all in excess of 10% — and Mould says the record of firms that in the past have on paper offered a 10%-plus yield have a poor record of actually making those payments.
Dividend (£ m)
Company · Yield (%) · Earnings cover (x) · Cut in last decade?
BP (LON:BP.)
0.04x
6,702 · 10.6% · 2010
4,969
6.8%
1.53x
BAT (LON:BAT) · No
4,030
3.9%
0.57x
Shell (LON:RDSA) · 2020
GSK (LON:GSK)
4,014
4.8% · 1.46x · No
Rio Tinto (LON:RIO)
3,354 · 6.0% · 1.55x · 2016
2.7%
AstraZeneca (LON:AZN) · 2,989 · 1.42x · No
2,181
6.4%
0.88x
Vodafone (LON:VOD) · 2018
2,049
2.6%
2.21x
2019
BHP Group (LON:BHP)
2,018
5.9%
1.54x
2016
Unilever (LON:ULVR)
1,796
3.3%
1.44x
No
1,751
5.1%
1.19x
No
Diageo (LON:DGE)
1,598
2.4%
1.60x
No
1,303
9.0%
1.86x
2020
1,251
2.4%
1.74x
No
Aviva (LON:AV.)
1,251
11.7%
1.52x
2012, 2013, 2019
1,079
8.3%
1.65x
No
RELX (LON:REL)
902
2.4%
1.88x
No
Glencore (LON:GLEN)
887
4.0%
0.59x
2015, 2016, 2020
Prudential (LON:PRU)
879
2.9%
3.77x
2019
SSE (LON:SSE)
832
5.7%
1.12x
2019