Dividends fell to their lowest level for nine years in 2020 as companies either cut or suspended their payouts, according to new research from financial group Link.

On a headline basis, payments fell by 44% to £61.9bn, which was the lowest annual total since 2011, Link said in its latest dividend monitor report.

Excluding special dividends, the fall was 38% to £61.1bn with two-thirds of companies either suspending or cutting their dividend between the ends of March and December.

Reductions related specifically to Covid-19 accounted for £39.5bn of the drop, but Link does not foresee a quick rebound with a return to previous highs unlikely until 2025 at the very earliest.

Banks and other financial services groups accounted for two-fifths of the cuts, mainly owing to regulatory prohibition on banking dividends.

The axe fell most heavily among the midcaps said Link, where there was a drop of 56% compared to 35% for the FTSE 100 members even allowing for the huge reduction in oil company dividends.

On a more encouraging note, the total for the year still came in ahead of Link’s best-case estimate as companies started to resume payments again in the fourth quarter – J Sainsbury PLC (LON:SBRY) and Ferguson were just two of many.

On a best-case scenario for 2021, Links predicts dividends might rise by 8.1% or to £66bn in total though the worst-case is another small fall.

Susan Ring, CEO Corporate Markets of Link Group said: “A slightly better end to 2020 may be a cause for relief but not for celebration.

“This was a dreadful result for UK investors, especially those for whom dividends are a major source of income.

“UK payouts have been more severely impacted than in most comparable countries because of their heavy concentration in the hands of just a few very large companies, mainly in the oil, mining and banking industries – all sectors that have had to cut dividends steeply.

“We still believe the worst is past, but a new lockdown means our expectations for 2021 are significantly more subdued.

“The biggest upside will come from the banks. They will only partially restore their dividends, but it matters more how quickly they do so, rather than exactly how much they pay.”

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