Wednesday 31 March 2021 9:57 am

Exclusive: FTSE 100 dividend yields forecast to jump by 24 per cent this year

Dividend yields on FTSE 100 shares may rise by 24 per cent this year as the economy begins its recovery from the coronavirus recession, according to new research shared with City A.M. this morning.

Based on a consensus of analysts’ views on how dividends will increase over the next year, UK equity analysts at Bowmore Asset Management found that dividend yields are set to jump from 2.56 per cent to 3.17 per cent in the next 12 months.

Read more: UK GDP shoots up after worst year on record amid non-stop ‘string of positive news’

Many FTSE 100 companies took a conservative approach to dividends in 2020 to ensure their balance sheets were not put under too much pressure during the early stages of the coronavirus crisis.

However, with the economy beginning to recover, many companies, including banks who have been given the green light to resume dividend payments, are now announcing higher dividends to be paid this year.

Read more: The final countdown: Are businesses prepared for the Libor transition?

Barclays and Royal Dutch Shell are among the companies that have already announced dividends to shareholders in the coming months.

“With the recent success of the vaccine roll out, the UK economy is now earmarked for a quicker and stronger rebound than was previously expected,” commented Charles Incledon, client director at Bowmore AM this morning.

“It does look like we are gradually returning to normal,” he said.

Read more: Investment trusts beat dividend drought with record payouts

Pandemic year

Banks, as well as oil ad gas companies, two of the UK’s largest dividend paying sectors historically, were among the sectors to cut dividends the most aggressively last year, alongside the industries hardest hit by the lockdown restrictions, such as travel and leisure as well as commercial property.

Banks were forced to suspend dividends at the height of Covid-19 crisis last March, with regulators believing they could have difficulty lending if dividends were continued to be paid.

HSBC and BT were among the largest FTSE 100 dividend payers to cut dividends last year, with each cancelling payments totalling more than £3bn.

Incledon, however, did point out that the ability of the large oil & gas companies to keep growing their dividends is heavily dependent on the price of oil in the next few months.

Read more: Burford Capital restores dividend following record year for realised gains