I’m talking about financials. Banks and insurance companies paused dividend payouts earlier this year at the Bank of England’s (BoE) behest. They are still in limbo. This is even as many other UK shares are seeing prices rise, at least partly because they are paying dividends again. In another article today, I have highlighted that UK’s property companies are among those that are now paying dividends.
But things may be about to change for the better for financials. The BoE is expected to give its verdict on dividends before the end of this year. With the Covid-19 vaccine pretty much a done deal now and improved forecasts for the UK economy for 2021, macroeconomic factors, for now, support the case for financials resuming dividends.
Lloyds Bank’s high dividend yield could return
Moreover, financials’ own performance shows that things are not as dire as they initially appeared. Take for example the recent Lloyds Bank update. The UK-focused bank recently swung back into profits after incurring losses the quarter before. It now expects fewer bad debts than it did earlier, among other things.
I’m still not convinced about this highly traded UK share, but I’m also aware of its potential appeal for income investors. After all, its share prices well and truly crashed only after it decided to stop paying dividends earlier this year. It’s likely to start paying dividends again in 2021. But going by LLOY’s past share price trend, it’s at the risk of capital erosion. I’d keep that in mind.
Immediate dividend options
Aviva, on the other hand is a UK share that looks more promising to me. This FTSE 100 stock is actually paying dividends even now. Like others, it too had cancelled dividends in April, only to resume them in August. The long-term outlook for insurance and Aviva’s own efforts to become a leaner and more efficient company go in its favour. It has been selling off operations in geographies like Italy and Singapore recently. Its share price has also been making gains in the recent days, which is a positive if it continues.
Standard Chartered is another FTSE 100 bank that could start paying dividends as early as February, according to news reports. The Covid-19 crisis continues to affect the bank’s performance, but it appeared optimistic about 2021. It remains to be seen what the BoE thinks, but I’d keep these stocks on my radar as an income investor.
Final note
While financials are one option, there are other FTSE 100 stocks to consider as well. If I’m convinced that financials will bounce back, at least some of my income investments will be directed in their direction. But diversifying into other promising sectors is always a good idea. Now, more than ever, when there’s so much uncertainty still in the air.
