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FTSE 100 dividends in touching distance of pre-pandemic peak

The latest Dividend Dashboard report from AJ Bell, shows: 

  • Total FTSE 100 dividend payments are forecast to grow by 36% this year to £84.1 billion, a fraction shy of the pre-pandemic peak of £85.2 billion
  • Just ten firms are forecast to generate the majority of this dividend grow, with miners and banks dominating the list
  • Rio Tinto is expected to be the index’s single biggest dividend payer this year with a payout of £10.8 billion
  • Evraz and Rio Tinto are forecast to have the highest dividend yields this year of 17.9% and 17.8% respectively

Russ Mould, investment director at AJ Bell, comments:

“The FTSE 100 is currently expected to yield 4.1% in 2021, helped by the first year of dividend growth since 2018. The index’s total dividend pay-out is expected to reach £84.1 billion in 2021, compared to £61.8 billion in 2020, an increase of 36%.

“Total payments peaked at £85.2 billion in 2018 and 2022 is expected to get tantalisingly close to that mark, at £85.1 billion, as corporate profits, cash flows and confidence look to recover from the effects of the pandemic.

“Dividend forecasts for 2021 have advanced for the fourth quarter in a row, buoyed by more optimistic forecasts for miners in particular. This reflects higher industrial metals prices, although September’s sharp drops in copper and iron ore could potentially put the lid on this positive forecast momentum, should they persist.

“For the moment, however, dividend payments are seen reaching £85.1 billion in each of 2022 and 2023. What’s more, dividend cover is improving. The aggregate earnings cover ratio for the FTSE 100 is now forecast at 1.77 in 2021, an improvement on 2020’s 1.45 times earnings cover.”

Source: Company accounts, Marketscreener, analysts’ consensus forecasts

Majority of dividend growth comes from just ten firms

“Just ten companies are expected to generate 80% of 2021’s dividend increase. Rio Tinto and BHP Billiton are the top two, so income-seekers may be concerned by autumn’s slump in the iron ore price amid concerns over economic growth in China in particular.

“Miners offer five of the six biggest forecast dividend increases in 2021 but that number dwindles to just two in 2022, when reductions at several resources plays hold back the overall forecast for the FTSE 100.”

Ten biggest forecast dividend increases in 2021

  2021 E 2021 E
  Dividend increase (£ million) Dividend increase (% FTSE total)
Rio Tinto 6,467 28.9%
BHP Group 2,621 11.7%
Anglo American 2,492 11.2%
HSBC 1,182 5.3%
Evraz 1,021 4.6%
Glencore 854 3.8%
Barclays 840 3.8%
Lloyds 838 3.7%
Royal Dutch Shell 768 3.4%
BT 763 3.4%

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

Company profits forecast to hit record high

“A renewed drop in economic activity could still pose a big risk to dividend forecasts. Analysts currently believe that 2022’s (adjusted) net profits will exceed not only the pre-pandemic peaks of 2018 but the current all-time high of 2011, when commodity prices were roaring higher, and miners and oil producers generated 42% of the FTSE 100’s profits between them.

“Miners, oils and financials are expected to generate more than 80% of 2021’s expected £128 billion increase in pre-tax income and each of those three is sensitive to global economic growth to some degree or other.

“If the economy offers little or no assistance – or even hinders – then these earnings forecasts, and by extension, dividend payment estimates could find themselves exposed to the downside.”

Source: Company accounts, Marketscreener, consensus analysts’ forecasts

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