What Is The Outlook For FTSE Dividends?

FTSE 100 still on track for a record payout in 2019

"Despite forecasts falling, the FTSE 100 is still due to pay out a record £91.2bn this year in absolute terms, which would be a yield 4.5%.

"The dividend yield on offer may be one reason why the FTSE 100 has risen by around 10% this year, despite all of the prevailing political and economic uncertainty.

"The dividend yield and the huge premium it offers compared to the ten-year Gilt yield, suggest that UK stocks are cheap and a lot of bad news may already be priced in. 

"An initial forecast for 2020 is looking for a total ordinary dividend pay-out of £93.5bn. While this represents a 2.5% increase on 2019's expected cash return it would be the lowest rate of advance since 2010, when the aggregate pay-out actually fell."

Dividend cover looks skinny at the highest yielders

"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.

"That said, Help to Buy has been extended again so it is possible that these payments are well underpinned, if unwittingly by the taxpayer. 

"Imperial Brands, Standard Life Aberdeen and Centrica have all seen their share prices nosedive over the past 12 months, thereby inflating their prospective yields. 

"Dividends at TUI and Direct Line could come under greater scrutiny thanks to tough trading conditions in the travel and insurance industries.

"Meanwhile, Aviva's new boss, Maurice Tulloch, has gently recalibrated dividend growth expectations by asserting that the distribution will increase in line with profits in the future. That may be a prudent approach in light of the dividend cuts of 2009, 2012 and 2013."

Dividend growth reliant on the banks

"Financials, oil & gas and consumer staples (such as tobacco and beverages) dominate in terms of their total dividend contribution and the banks remain particularly important to dividend growth forecasts.

"Just ten stocks are expected to generate 64% of 2019's forecast £5.6bn increase in total dividend payments, with Royal Bank of Scotland generating a fifth of that sum on its own.

"Barclays and HSBC are also expected to be among the list of the ten largest contributors to dividend growth in 2019, with both Lloyds and Standard Chartered hovering on its fringes."

Dividend growth reliant on the banks (continued)

"The combined dividend payment from the Big Five banks is expected to exceed the pre-crisis peak of some £13.3bn.

"This makes concerns over the economy, both in the UK and worldwide, particularly important as the first-quarter results did little to assuage concerns over the lack of progress in net interest margins.

"The prospect of interest rate cuts from Western central banks, not increases, is an additional complication when it comes to banking margins, even if they are designed to boost economic growth and thus demand for credit."