This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
The coronavirus pandemic has had a dreadful impact on equity dividends, particularly in the UK market. Over 2020, UK companies cut their dividends by 44% on an underlying basis, according to the latest Link Dividend Monitor. Link’s best-case estimate for 2021 growth is only 5.6% on an underlying basis. This would leave underlying payouts c. 41% below the level they entered 2020. On a prospective basis, this would amount to a yield of just 3.3% on the UK market, according to Link’s calculations as of the end of March 2021.
In our recent review of the UK equity income sector, we highlighted how UK equity income investment trusts had managed to protect their payouts well during the crisis, and even in some cases grow them, despite this bloodbath amongst the underlying companies. The sector has been rewarded with a narrow discount on the whole. However, the scope for future dividend growth is clearly limited, particularly if Link is right and dividends do not return to their pre-crisis levels until 2025. One option for investors is to turn to alternatives to boost their income and perhaps their dividend growth potential.
We outline the main options below and ask if the pandemic has impacted dividend potential in alternatives too. As well as higher yields, we note there is still scope for dividend growth in some of the alternatives too which may justify investors allocating to alternatives while they wait for equity dividends to recover.
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