As a result of Covid-19, the global economy has weakened substantially and several FTSE 100 components have suspended their dividend payments.
Many people think Covid-19 will be contained in the next year in many parts of the West. That means there’s a decent chance dividends could return for many of the FTSE 100 companies that suspended them. If dividends even partially return, it would be welcome news for many shareholders.
Numerous pensioners depend on dividend stocks to pay their bills. A considerable percentage of investors also reinvest dividends into the market to potentially gain a higher return. Here are two stocks that I think will pay dividends again by 2021.
A leading emerging markets bank
Earlier in the year, FTSE 100 component Standard Chartered (LSE: STAN) suspended its dividend at the request of regulators concerned about Covid-19’s effect on liquidity in the market.
Now that most analysts expect a Covid-19 vaccine to be approved in the West by next year, however, there is a pretty good probability the regulators will allow many British banks to restart their dividends again.
Standard Chartered itself has been in decent shape. CEO Bill Winters recently said in a conference call, “I feel good about where Standard Chartered is six months into a global crisis. We’re profitable. We’ve got a strong capital position and are getting stronger.”
Given its financial strength and forecasts, Standard Charted has said it would consider resuming shareholder returns next year. If Standard Chartered were allowed to pay a dividend, I think it could be pretty good news for the stock.
The bank is currently trading at a fairly low valuation with a price-to-book ratio of around 0.32. Many analysts also think global growth could be rather strong next year as the world begins moving closer to normal.
If Standard Chartered were to pay a dividend and the company does a good job riding economic tailwinds, I think the bank could potentially earn a higher P/B ratio.
A leading FTSE 100 hotel chain
Given the pandemic lockdowns, fewer people have been traveling and the weaker travel numbers have led to lower occupancy rates for Intercontinental Hotels’ rooms. The lower occupancy numbers have caused IHG’s finances to weaken as well.
Despite the difficult conditions, however, IHG reported positive free cash flow in the third quarter. The company also reported some encouraging trends, such as occupancy rising from 25% in Q2 to 44% in Q3.
Another encouraging sign is that Intercontinental Hotel Group’s Greater China business has rebounded to near-normal levels rather quickly. China is one of the first countries to have successfully contained the coronavirus.
Given the encouraging occupancy trends, I think there is a decent chance IHG restarts its dividend next year.
Although IHG’s dividend next year might not be the same as it was pre-pandemic, I think it would nevertheless be a step in the right direction if it were to happen.
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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group and Standard Chartered. 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.