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Are dividends from UK shares bouncing back? This is how I’m investing to retire rich

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Dividend investors know first hand that 2020 has been a disaster for their wallets. UK shares have scythed down and cancelled shareholder payouts at a rate not seen donkey’s years.

The size of the crisis was highlighted by Janus Henderson today. According to the asset manager: “An unfavourable sector mix and concentration among a few big payers [means] that UK dividends are falling further than most other countries.”

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It said dividends from UK shares plummeted 41.6% (on an underlying basis) in the third quarter. This compares with the 11.4% drop in total global dividends on a comparable basis.

Dividends from UK shares plummet

Janus Henderson says dividends from UK shares have fallen more steeply than those from other parts of the world in 2020 because of a sector mix dominated by oil companies, banks and mining specialists.

It also points to a history of over-distribution among some key companies, and the fact that a small number of stocks are responsible for a high concentration of total dividends, exacerbated the scale of third-party drops.

On a headline basis, dividends from UK shares plummeted an eye-watering 47% in the third quarter as special dividends also plummeted. And this meant the headline number was the worst third-quarter result for a decade.

Are dividends in recovery?

But things have been better for investors in recent months. Could dividends from British companies finally be turning the corner?

Janus Henderson gave embattled UK share investors a crumb of comfort on Monday. The financial colossus reckons global dividends will fall between 20.2% and 17.5% on an underlying basis in 2020. However, it says that “the worst of the cuts are now behind us.”

The UK national flag in front of Canary Wharf skyscrapers where professionals trade shares for a living.

And it predicts dividends could begin to grow again from the second quarter of 2021 after another fall in quarter one. Under Janus Henderson’s worst-case scenario, global payouts will remain flat year-on-year in 2021. But its best-case modelling suggests annual dividends will rocket 12% from 2020 levels.

Still, its outlook for 2021 wasn’t exactly reassuring for UK share investors. Firstly, it said Covid-19 uncertainty and the possible need for further lockdowns clouds the picture. And total dividends from British companies remain at the mercy of whatever regulators decide to do about the dividend policies of British banks.

Investing wisely in UK shares

What’s clear is that income investors need to remain extremely careful in the current climate. The UK economy’s been hit particularly hard by the Covid-19 crisis. The end of the Brexit transition period on 1 January offers another possible obstacle for many UK shares.

However, these issues aren’t enough to discourage me from continuing to invest in my Stocks and Shares ISA. There are still plenty of quality UK shares out there that should deliver big dividends in 2021. And a great many of these can be picked up at little cost following the stock market crash of early 2020 too. I’ve bought shares in Coca-Cola HBC in recent days. And there are plenty of other UK shares on my radar too.

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Royston Wild owns shares of Coca-Cola HBC. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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