Miners and banks dominate the top ten dividend increases this year
Just ten companies are expected to generate 87% of 2021’s dividend increase. Miners and banks in particular are providing support to aggregate consensus earnings and dividend forecasts.
Rio Tinto and BHP Billiton are the top two, so income-seekers will need to keep an eye on the price of iron ore in particular.
The Big Five lenders – Barclays, HSBC, Lloyds, NatWest and Standard Chartered – took their lead from the Prudential Regulatory Authority by cancelling all dividends at this time a year ago and they did so again this spring by recommending payments, once they had received clearance to do so.
Even though Barclays and Standard Chartered both declared lower dividends than analysts had expected and opted to take the share buyback route as well, four banks sit alongside four miners in the list of the ten stocks that are expected to make the biggest individual contributions to the £15.3 billion total increase in FTSE 100 dividends in 2021.
The only FTSE 100 bank not in the top ten is Standard Chartered and it still ranks fourteenth in the list of forecast dividend increases for this year, in cash terms.
|
|
2021 E |
2021 E |
|
|
Dividend increase (£ million) |
Dividend increase (% FTSE total) |
| Rio Tinto |
4,383 |
28.6% |
| BHP Group |
2,009 |
13.1% |
| Anglo American |
1,738 |
11.3% |
| HSBC |
1,167 |
7.6% |
| Barclays |
845 |
5.5% |
| Lloyds |
838 |
5.5% |
| BT |
764 |
5.0% |
| NatWest Group |
677 |
4.4% |
| Glencore |
479 |
3.1% |
| Persimmon |
399 |
2.6% |
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
Dividend cover is finally improving
While it is understandable that cover will be lower than ideal as companies emerge from an economic downturn and a dip in profits, the aggregate earnings cover ratio for the FTSE 100 is now seen rising to 1.83 times in 2021.
That is an improvement on 2020’s 1.41 times earnings cover and analysts had been expecting cover for 2021 of only 1.56 times one quarter ago, so that figure is going in the right direction. Further, minor improvement to 1.84 times earnings cover in 2022 is the result of profits growth of 4.8% and dividend growth of 3.8%.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
Investors need to focus on concentration risk
Investors must assess concentration risk when it comes to dividends as well as earnings, an issue which has dogged those who have sought income from the UK stock market for some years.
Just ten stocks are forecast to pay dividends worth £40.2 billion, or 52% of the forecast total for 2021. The top 20 are expected to generate 71% of the total index’s pay-out, at £54.4 billion.”
|
2021 E |
||||
| Dividend (£ million) | Dividend yield (%) | Dividend cover (x) | Cut in last decade? | |
| Rio Tinto | 8,729 | 12.0% | 1.31x | 2016 |
| British American Tobacco | 4,836 | 7.5% | 1.39x | No |
| Royal Dutch Shell | 4,044 | 3.6% | 2.99x | 2020 |
| BHP Group | 3,981 | 9.2% | 1.18x | 2016, 2020 |
| Unilever | 3,862 | 3.4% | 1.26x | No |
| HSBC | 3,350 | 3.9% | 1.87x | 2019, 2020 |
| BP | 3,045 | 4.7% | 2.24x | 2011, 2020 |
| GlaxoSmithKline | 2,952 | 4.2% | 1.19x | No |
| Anglo American | 2,736 | 7.2% | 2.31x | 2015, 2016, 2020 |
| AstraZeneca | 2,692 | 2.5% | 1.11x | No |
| Vodafone | 2,151 | 6.0% | 1.00x | 2018 |
| National Grid | 1,792 | 5.4% | 1.25x | No |
| Diageo | 1,635 | 2.0% | 1.66x | No |
| Glencore | 1,630 | 4.0% | 2.94x | 2015, 2016, 2020 |
| Imperial Brands | 1,322 | 8.7% | 1.67x | 2020 |
| Lloyds | 1,242 | 3.7% | 3.43x | 2019, 2020 |
| Reckitt Benckiser | 1,235 | 2.7% | 1.75x | No |
| Legal and General | 1,104 | 6.8% | 1.68x | No |
| NatWest Group | 1,040 | 4.4% | 1.44x | 2019 |
| Barclays | 1,019 | 3.5% | 3.83x | 2016, 2019, 2020 |
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, Refinitiv data
Dividend aristocrats
History suggests that it is not the highest-yielding stocks which prove to be the best long-term investments anyway (although the past is by no means a guide to the future).
Often defending a high yield can be a burden for a firm, as it sucks cash away from vital investment in the underlying business, or can be a sign that the company is in trouble and investors are demanding such a high yield to compensate themselves for the (perceived) risks associated with owning the equity.
The strongest long-term performance often comes from those firms that have the best long-term dividend growth record, as they provide the dream combination of higher dividends and a higher share price – the increased distribution will over time drag the share price higher through sheer force.
The ravages of the pandemic and the recession have taken their toll on the ranks of FTSE 100 firms that can point to a ten-year dividend growth track record. One year ago, 24 firms were on this list. That number has since dwindled to 15 even as National Grid and United Utilities have joined this elite grouping in the past quarter.
Even allowing for the potential changes and deletions to the list of dividend-growers over time, those that managed to maintain their proud runs in 2020 have been tremendous long-term investments.
The average capital gain from the 15 ten-year dividend growers is 509% and the average total return is 654%. Both easily beat the FTSE 100, at 22% and 79% respectively.
14 of the 15 firms to have increased their dividend in each of the last 10 years have outperformed the FTSE 100 in capital terms, with British American Tobacco the sole exception. In total return terms, 14 have done better than the FTSE 100 index, with BAT again the exception that proves the rule.
|
Total return |
Dividend CAGR* |
Forecast dividend growth** |
||
|
|
2011-2020 |
2011-20 |
2021 E |
2022 E |
| Ashtead |
3,425.4% |
29.3% |
6.8% |
17.8% |
| Intermediate Capital |
1,013.1% |
12.0% |
10.7% |
12.9% |
| London Stock Exchange |
991.2% |
11.9% |
14.7% |
14.0% |
| Scottish Mortgage |
865.0% |
3.6% |
3.8% |
4.2% |
| Spirax-Sarco |
734.8% |
10.6% |
9.3% |
7.0% |
| Halma |
703.4% |
6.6% |
9.7% |
5.3% |
| Croda |
369.4% |
10.0% |
7.7% |
7.1% |
| RELX |
368.6% |
8.7% |
4.3% |
8.2% |
| DCC |
311.8% |
10.2% |
6.4% |
4.1% |
| Diageo |
259.2% |
6.3% |
0.2% |
5.7% |
| Hargreaves Lansdown |
258.7% |
13.8% |
38.7% |
(9.6%) |
| United Utilities |
175.2% |
3.7% |
1.2% |
1.1% |
| National Grid |
163.5% |
3.1% |
2.5% |
1.2% |
| Sage |
94.0% |
8.3% |
1.7% |
2.6% |
| British American Tobacco |
69.9% |
6.6% |
0.6% |
5.5% |
|
|
|
|
|
|
| AVERAGE |
653.5% |
9.6% |
|
|
| FTSE 100 |
78.7% |
4.0% |
24.9% |
3.8% |
Source: Refinitiv data, Company accounts. *Compound annual growth rate. **Source: Marketscreener, consensus analysts’ forecasts
Dividend growth is so powerful because it almost inevitably drags a share price higher. The average dividend yield for the 15 ten-year raisers is forecast to be 2.4% in 2021, below the 3.7% average across the FTSE 100. But their below-average yields have hardly proved a barrier to excellent total returns over the subsequent ten years.
That is at least partly because, the dividend yield available on the March 2011 share price using forecast 2021 dividends is 8.5% – and if anyone offered an investor a guaranteed 8.5% dividend yield they would probably snap your hand off, so that shows how a rising dividend can lift a share price, boosting income and capital gains for a powerful total return.”
|
2021 yield on Mar-11 share price |
2011 yield on Mar-11 share price |
|
| Ashtead |
24.7% |
2.1% |
| Intermediate Capital |
17.9% |
6.1% |
| DCC |
8.8% |
3.5% |
| RELX |
8.7% |
4.0% |
| London Stock Exchange |
8.5% |
3.0% |
| National Grid |
8.3% |
6.6% |
| British American Tobacco |
8.1% |
4.7% |
| United Utilities |
7.3% |
5.0% |
| Hargreaves Lansdown |
6.2% |
2.1% |
| Spirax-Sarco Engineering |
6.2% |
2.3% |
| Sage |
6.1% |
2.6% |
| Diageo |
5.5% |
3.2% |
| Croda |
4.5% |
2.7% |
| Halma |
4.4% |
2.5% |
| Scottish Mortgage |
2.4% |
1.6% |
|
|
|
|
| AVERAGE |
8.5% |
3.5% |
Source: Refinitiv data, company accounts, Marketscreener, consensus analysts’ forecasts
