It hasn’t been a good year for UK income investors. As a result of Covid-19, many UK companies have cut, suspended, or cancelled their dividends.
Is next year going to be better? Let’s take a look at the 2021 dividend forecasts for three of the UK’s most popular income stocks – Barclays (LSE: BARC), HSBC Holdings (LSE: HSBA), and BT Group (BT.A).
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2021 dividend forecasts: Barclays and HSBC
2020 was a nightmare for anyone who owns UK bank shares for income. Early in the year, the Bank of England (BoE) banned all UK banks from paying dividends to investors. The logic behind this move was that banks would need as much capital as possible to support the economy during the coronavirus pandemic. As a result of this ban, Barclays and HSBC paid no distributions for the year.
Will UK banks be able to resume paying dividends in 2021? I think it’s certainly possible. According to a recent article in The Times, the BoE and the major banks are currently ‘bartering’ a dividend deal. This deal would allow them to make shareholder payouts as long as their loss-absorbing capital buffers are strong and they continue to extend credit to the real economy.
Interestingly, the consensus 2021 dividend forecast for Barclays is currently 5.01p per share. Meanwhile, the consensus 2021 forecast for HSBC is 27 cents per share. These forecasts – which equate to yields of around 3.6% and 5.1% respectively – suggest that analysts believe the BoE dividend ban will be lifted next year.
Of course, analysts’ forecasts are not always accurate. They can be way off the mark at times. So, there’s no guarantee that Barclays and HSBC will pay these kinds of dividends in 2021. If economic conditions remain weak, the BoE may keep its dividend ban in force. However, if City analysts are right, 2021 should certainly be a better year than 2020 for those who own UK bank stocks for income.
Will BT pay a dividend for FY21?
Turning to BT, the near-term dividend prospects are not so encouraging.
This year, BT hit investors with a double blow. Firstly, it advised that it was suspending its final 2019-20 payout. Then it advised that it would be paying no distribution for 2020-21. This means investors should expect no payout for FY21 (BT’s financial year ends 31 March 2021). Currently, city analysts expect no dividend to be paid.
Looking further out, however, analysts do expect BT to pay dividends for the year ending 31 March 2022. At present, the consensus dividend forecast is 7.6p per share. That payout – which is about half of what BT paid for FY19 – equates to a yield of roughly 6.2% at the current share price.
But it’s worth pointing out that BT continues to have a large amount of debt on its balance sheet. It also has a large pension deficit. As such, even that reduced dividend may not be sustainable. For those looking for yield, I think there are better stocks to buy.