FTSE 100 forecast to yield 4.7% in 2020 with a record dividend payout of £91.1 billion

Russ Mould
17 December 2019

AJ Bell’s latest Dividend Dashboard report shows:

•        FTSE 100 is forecast to yield 4.7% in 2020
•        The forecast dividend payout of £91.1billion would be a new record, although this represents growth of just 1.8% compared to 2019
•        The biggest contributors to dividend growth looks set to be BAT and RBS
•        The biggest detractors to dividend growth look set to be Rio Tinto and BT
•        Dividend cover remains stubbornly static at just 1.69, below the ideal level of 2
•        Imperial Brands, Taylor Wimpey and Evraz look set to offer the highest yields next year – all in excess of 10%

Russ Mould, investment director at AJ Bell, comments:

“The FTSE 100 is currently expected to yield 4.7% for 2020, helped by forecasts for a record-high distribution to shareholders of £91.1 billion.  However, this represents growth of just 1.8% from 2019’s expected pay-out of £89.5 billion. If correct, that would be the lowest rate of advance since 2009 and 2010, when the aggregate pay-out came in broadly flat.

 
Source: Company accounts, Sharecast, analysts’ consensus dividend forecasts

“Remarkably, just ten stocks are expected to generate more than 98% of 2020’s forecast £1.6 billion increase in total dividend payments, partly due to the reductions that are now expected at Anglo American, Glencore, Evraz, Rio Tinto and BT.

“The biggest increases in sterling terms are expected from British American Tobacco and RBS. In total, three of the ten biggest dividend hikes are forecast to come from 
banks (RBS, Standard Chartered and Barclays), two from consumer staples giants (BAT and Unilever) and one from asset manager and recent market joiner M&G.”

Ten biggest contributors to FTSE 100 dividend growth in 2020

 

% contribution to FTSE 100 total dividend growth in 2020

British American Tobacco

17.8%

Royal Bank of Scotland

16.3%

M & G

11.1%

Standard Chartered

10.3%

BP

8.7%

Unilever

7.9%

Barclays

7.8%

Lloyds

7.6%

Tesco

5.6%

Royal Dutch Shell

5.4%


Five biggest detractors to FTSE 100 dividend growth in 2020

 

% contribution to FTSE 100 total dividend growth in 2020

Anglo American

-7.2%

Glencore

 -7.6%

Evraz

-14.1%

BT

-19.3%

Rio Tinto

-28.8%

Dividend cover remains stubbornly static

“Earnings cover is forecast to be 1.69 times in 2020, up slightly from 1.62 times in 2019 but still some way below the 2.0 threshold that gives comfort and provides a safety buffer, should anything untoward happen. 

“Disappointingly earnings cover forecasts have also dribbled lower, as earnings forecasts have fallen much faster than dividend payments. 

“At this time one year ago, analysts were forecasting dividend cover of 1.79 times for 2020. But since then aggregate net income forecasts have dropped by £13.3 billion, or 5.6%, while aggregate dividend payment estimates have been cut by just £3.3 billion, or 3.5%.

“This suggests that companies are aware of the importance of dividends to investors in a low-interest-rate world and are working hard to accommodate yield-hungry investors. But management must be careful that they are not over-paying and under-investing to curry short-term favour to the long-term detriment of their business’ competitive position and therefore its ability to generate cash and offer dividends.”

Forecast earnings cover for 2020 has gradually reduced over the year 

 
Source: Company accounts, Sharecast, analysts’ consensus dividend forecasts

“Sceptics will also flag how average earnings cover for the dividend stands at just 1.44 times across the ten-highest yielding stocks in the FTSE 100. Dividend payment estimates have dropped very sharply at one of the ten-highest yielders, Evraz, while another, Imperial Brands, has reined in an ambitious dividend growth target.

“Imperial Brands’ huge forecast dividend yield, despite the scrapping of its 10% annual increase target, is the result of investor scepticism over its long-term cash flows and increased pushback against ‘sin stocks’ on ESG grounds.

“The lowly earnings cover partly reflects the lofty expected pay-outs at a trio of house builders, Taylor Wimpey, Barratt Developments and Persimmon. The good news is that all three have net cash balance sheets with which to reassure shareholders, even if earnings cover looks lower than ideal.

“A skinny cover ratio at HSBC remains a concern, and will come under increasing scrutiny the longer Hong Kong’s political unrest continues, and of the ten highest-yielding stocks, only M&G offers cover of more than 2.0 times. 

“In terms of the yields, the presence of three house builders in the top ten highest yielders is testimony to the size of their capital return programmes, but it may also hint at investor scepticism that the industry can maintain its current lofty levels of profitability without the benefit of Government assistance, via the Help to Buy and Lifetime ISA schemes, with the former running to 2023 for first-time purchasers who are buying new-build properties.

“Imperial Brands, British American Tobacco and Evraz have all seen their share prices nosedive over the past 12 months. Profit and dividend forecasts have crashed at the Russian firm but while the other two have generated disappointing revenue growth with their next generation products, neither has seen a profit estimate downgrade, even if Imperial has backed off from an overly aggressive dividend growth target.”

The ten firms forecast to have the highest yields in 2020

 

Dividend yield (%)

Dividend cover (x)

Imperial Brands

12.2%

1.32 x

Taylor Wimpey

10.6%

1.11 x

Evraz

10.5%

1.55 x

Persimmon

9.3%

1.14 x

M & G

8.5%

2.09 x

Aviva

8.2%

1.84 x

British American Tobacco

7.5%

1.53 x

Standard Life Aberdeen

7.1%

0.87 x

HSBC

7.1%

1.38 x

Barratt Developments

7.1%

1.54 x

AVERAGE

8.8%

1.44 x

Russ Mould
Investment Director

Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993 he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

Contact details

Mobile: 07710 356 331
Email: russ.mould@ajbell.co.uk

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