Dividends & FTSE Range Update

Saw the Q4 Dividend Monitor Update from Link Asset Services yesterday. This confirmed previous projections that UK dividends were down last year by around 44% or 38% underlying if you exclude special dividends.  More significantly they updated their best case scenario for dividends in 2021 in light of the latest lock down. Within the document which you can see a summary of and obtain from here they said: 

• For 2021, Link Group expects a best-case increase of 8.1% on an underlying basis, yielding a total £66.0bn; headline dividends (which include specials) would rise 10.0%
• In a worst-case scenario pay outs could fall again in 2021, dropping 0.6% to £60.7bn on an underlying basis, or £61.5bn including special dividends
• Link does not expect UK dividends to regain previous highs until 2025 at the very earliest

So in terms of the FTSE ready reckoner that I presented in my last post this suggests that we should probably assume a 0 to 10% range for the likely dividend growth outcome for the FTSE 100 this year. Using that & my assumed 3.5% to 4% yield range for FTSE still suggests a trading range for the FTSE of potentially between about 5900 - 7747 or say 6,000 to 7,500 if you wanted to tighten that up a little by looking at the charts and support / resistance levels.

Currently with FTSE trading at 6740  that leaves us pretty much in the middle of my suggested range. If however you are of a more bullish persuasion then if the FTSE 100 should trade down to or on the basis of a 3% yield then it might be possible for it to trade between 7800 and 8600 or thereabouts, but I wouldn't bet the house on that happening.

There you go steady as she goes on the dividend front but slightly depressing that dividends might not now bounce back as quickly as previously expected and that it might take until 2025 for the market to get back to where it was in 2019 in income yield terms. It is also worth noting that the Link report suggests that the UK market despite cuts from some of the larger paying stocks and sectors last year, still seems to be prone to concentration risk in terms of where the income is generated. Worth bearing in mind if you are investing in a UK tracker fund.   

Personally I'd expect to get back to 2019 levels of income much sooner than that given that our portfolios avoided the worst of the dividend cuts by not being as exposed to  concentration risk as the headline indices and thanks to our investment trust holdings. Mind how you go out there and in the market.