Stockopedia: 10 large-cap dividend shares set to grow payouts

Dividend payouts crashed by 44% last year, but many companies are ready to reboot them this year.

Dividend payouts from UK quoted companies fell by 44% to £61.9 billion in 2020 - a level not seen since 2011. Chaos caused by coronavirus devastated dividends through the year as companies barricaded their finances against the uncertainty.

But while payouts for 2021 remain difficult to predict, some companies are expected to ratchet up their returns to shareholders this year.

The final data on 2020 dividend payouts makes for inevitably grim reading. Analysis by Link Asset Services shows that Covid-19 was responsible for £39.5 billion of cuts during the year. Two-thirds of companies cancelled or cut their payouts between the second and fourth quarter.

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Among the worst-hit sectors was financials, where the Bank of England intervened to put a halt to payouts early in the crisis. That contributed two-fifths of the overall decline. Oil stocks were also badly affected, with the sector contributing another fifth to the total cut.

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In terms of company size, large-cap dividends fared better than those of the mid-caps, with cuts coming in at 35% and 56%,  respectively. For the year ahead, Link Asset Services’ best-case scenario sees an increase in the overall dividend payout of 8.1%. In a worst-case scenario, the overall payout will fall again by 0.6%. It reckons that it will take until 2025 for payouts to regain their previous highs.

For income investors, the landscape is challenging, but a focus on a handful of important dividend metrics could help detect some of the stronger prospects for the year ahead. While some sectors have been under severe pressure, others have actually flourished over the past year, notably mining and more defensive industries.

With this in mind, we’ve taken a look at where some of the largest forecast dividends hikes can currently be found in the FTSE 350. This screen uses some simple dividend screening rules: looking for strong growth forecasts, above-average yields and solid dividend cover across the index.

The results are indicative of some of the trends we’ve seen in dividends over the past year, with big forecast upgrades in large-cap mining shares like Ferrexpo, Rio Tinto and Polymetal. Less economically sensitive industries are also represented, with financials like Close Brothers and Paragon, defensives including Britvic and British American Tobacco and industrials such as Babcock and Ultra Electronics.

Overall, the pain of dividend cuts that washed through the market last year may have slowed but the outlook still remains very uncertain. What looks likely is that those larger-cap stocks with more resilience to financial headwinds caused by the pandemic will be some of the first to see strong growth forecasts in their payouts. Income investors will need to tread carefully, but there could be opportunities emerging.