Dividend hunt: where the big payouts will likely be in 2020

This team of analysts updates its dividend list and names income stocks to watch in the months ahead. 

The sectors with the greatest income potential over the rest of 2020 have been identified, as investors go in search of the dividends most likely to survive the pandemic.

A note from Peel Hunt reveals that 89 companies in the FTSE 100 index, half of the FTSE 250 index and 60 AIM and smaller cap companies still have £32 billion worth of dividends to announce this year.

A large number of these are certain to go the same way as the £29.3 billion already cancelled to date in 2020, given that many companies have pulled previous payments. But the note is still useful for highlighting where some much-needed income may lie.

The five sectors with the most potential are mining at £5.5 billion, utilities (£4.7 billion), oil and gas (£4.4 billion), consumer (£4 billion), and insurance at £1.7 billion.

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The update comes after a brutal few months for income investors, with BT (LSE:BT.A), Lloyds Banking Group (LSE:LLOY), HSBC (LSE:HSBA) and Taylor Wimpey (LSE:TW.) among the high profile stocks pulling their dividends in response to the Covid-19 turmoil. Royal Dutch Shell (LSE:RDSB) caused the biggest sensation of all last month by cutting its first quarter award by two-thirds to £481 million.

In separate research today, the Global Dividend Index from Janus Henderson predicted that dividends globally are set to fall by at least 15% in 2020 to US$1.21 trillion. That is a best-case scenario, however, with the potential downside being a decline of 35% to $933 billion.

Banks, discretionary consumer sectors and economically sensitive industrials are most severely impacted, with Janus Henderson seeing more safety in dividends from technology, healthcare, food and most basic consumer sectors.

Ben Lofthouse, co-manager of Global Equity Income at Janus Henderson said: “In 2019, over two-fifths of the world’s dividends were paid by defensive sectors that will be relatively insulated from the recession.

“Another two-fifths were paid from more economically sensitive companies that are facing actual or potential cuts, while amongst the remaining fifth the impact will be mixed.

“Both sector and geographical location are having a significant impact on the ability to pay dividends, which of course, highlights the value of taking a global approach to income investing.” 

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The Peel Hunt note shows that a meagre £7.1 billion of dividends are in the process of being paid by just 10 FTSE 100 companies, excluding those that have been paid already this year.

This list of blue-chip stocks is led by BP (LSE:BP.) with its first-quarter dividend worth £1.7 billion due to go into shareholders' accounts on 19 June. Vodafone is next with its £1.1 billion scheduled for payment on 7 August, followed by GlaxoSmithKline's (LSE:GSK) £946 million on 9 July.

A number of insurers continue to pay dividends, with the yields on offer from Standard Life Aberdeen (LSE:SLA) and Legal & General (LSE:LGEN) at an impressive 6.8% and 6.7% respectively.

The pair are also scheduled to make interim dividend payments in September, when the yield will be closer to 3%. Life assurance consolidator Phoenix (LSE:PHNX) offers a potential yield of 4.1% on its prospective September payment, with Prudential (LSE:PRU) at 1.6%.

Peel Hunt's list of pending dividend payers includes safe havens Severn Trent (LSE:SVT) and United Utilities (LSE:UU.), whose results next week are forecast to give yields on payment of 2.4% and 3.1% respectively. Reckitt Benckiser (LSE:RB.) next results in July will also be worth looking out for, having recently reported that 2020 trading had got off to a better-than-expected start.

The Dettol and Nurofen maker is paying a final dividend of 101.6p worth £721 million on 28 May, followed by an expected interim payment of £518 million in September.