Where to find dividend income from UK shares

Amid increasing dividend scarcity, one industry expert has listed the stocks that may keep paying out.

Finding income is getting harder by the day, with cancelled dividends now at £15.5 billion and counting after Centrica (LSE:CNA), Serco Group (LSE:SRP) and even stalwart Bunzl (LSE:BNZL) joined the list of those cutting returns to shareholders.

A useful note published today by broker Peel Hunt attempts to give investors a helping hand by splitting stocks in the FTSE 350 index and AIM 100 into four separate dividend piles.

The list of those to have cancelled or suspended dividends in the past four weeks is now more than 120 strong and dominated by the building sector with 29 announcements. They include high-yielding stocks such as Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN) as companies across the industry batten down the hatches in order to focus on keeping cash on their balance sheets.

• Invest with ii: Top UK Shares | How to Start Trading Stocks | Share Tips & Ideas

Marks & Spencer's (LSE:MKS) £130 million payment has been another to go, among 11 dividends sacrificed so far in the retail sector. At a time when companies are looking to use the government's furlough scheme or defer payments such as rents, it should come as no surprise to find consumer-facing consumers taking a hit on their dividend.

• A £9 billion dividend windfall now at risk
• Lloyds and other UK bank shares slump after halting dividend payments

• Coronavirus. What it means for your investments
• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)

What will be more of interest to investors will be the 40-strong list of companies still committed to paying dividends amounting to as much as £8.5 billion. Utilities, oil and gas and healthcare companies dominate the list, with financial stocks including Lloyds Banking Group (LSE:LLOY) completely absent after agreeing to the demands of regulators not to make any awards in 2020.

Some on the list, such as dividend heavyweights BP (LSE:BP.), Imperial Brands (LSE:IMB) and BHP Group (LSE:BHP), have already paid shareholders in relation to their 2019 performances. Others have gone ex-dividend and are due to pay in the next few days, including £1.1 billion from GlaxoSmithKline (LSE:GSK) next Thursday.

On the same day, self-storage provider Safestore (LSE:SAFE) will pay a dividend of 12p a share worth £25.3 million. Confirming the payment in a trading update today, the company points out it will have undrawn debt facilities of £151 million even after the shareholder award is made.

Recruitment firm Page (LSE:PAGE) and power station operator Drax Group (LSE:DRX) are on the list. They haven’t cut yet but haven’t issued a Covid-9 update either. Page’s payout looks vulnerable. British American Tobacco (LSE:BATS) hasn’t said it will cancel, yet. Miners are due to pay big too and haven’t said they won’t, although they did axe returns during the financial crisis.

Housebuilder Berkeley Group (LSE:BKG) has just paid out a £125 million dividend and still believes it will return £140 million by 30 September 2020 through a combination of share buy-backs and dividends.

The challenge going forward for investors will be to secure income from the 100 or so companies due to announce dividends over the coming weeks. One of them is Vodafone (LSE:VOD), which we highlighted last week as one of 11 UK-listed stocks where the dividend appears secure. The mobile phone giant only cut its dividend last year, with its performance likely to have benefited from increased demand for data during the coronavirus crisis.

• 11 UK stocks where experts think the dividend is safe
• A checklist for finding dividend shares in a crisis

BT's (LSE:BT.A) results on 7 May will be of particular interest, given that its dividend future was the subject of much speculation even before the pandemic struck. Peel Hunt currently estimates BT's final dividend will be 10.5p for a yield of almost 9%. We’ll see.

A safer bet will be the utilities National Grid (LSE:NG.), Severn Trent (LSE:SVT) and United Utilities (LSE:UU.) when they report results a few days later, ahead of dividend payments in late July and August. 

National Grid said today it will “take into account expected business performance and regulatory developments, including an assessment of the impact of Covid-19” when deciding the final dividend for the year ended 31 March 2020. Severn Trent said earlier this week there had been “no material change to current year business performance since the 28 January”, but that “we will continue to closely monitor our cash flows and update our contingency planning accordingly.”

100 companies yet to confirm dividend promise

Peel Hunt's research also includes another 100 companies that have announced £13.6 billion of dividends, but not confirmed they will still go ahead. Peel Hunt said whether they do so will depend on how long the lockdown lasts and the implied impact on company cash flows.

The possibility of regulatory pressure on insurance companies to follow the example of banking counterparts means that many in this sector could end up in the cancelled bucket. A number of chunky yields are at risk as a result, such as Aviva's (LSE:AV.) 8% on its £839 million dividend due on June 2 and the 6% on Legal & General's £752 million set for two days later.

Insurance is one of five sectors to have accounted for just over half of market dividends in 2019, with the others being banks, energy, pharmaceuticals and capital goods. UBS said investors would do well not to become too fixated by 2020 dividend payments, given the special circumstances impacting on a range of sectors.

The bank said:

“It may be more useful to focus on the ability of companies to pay dividends going forward rather than simply how they act in 2020.”

Omitted from the list are the supermarkets – Sainsbury's (LSE:SBRY), Tesco (LSE:TSCO) and Morrisons (LSE:MRW). 

• Food crisis: Sainsbury’s ex-boss Justin King on Covid-19, shares and shoppers
• Morrisons scraps special dividend, but sales booming

Morrisons has decided to shelve a planned special payout but seemed committed to the final ordinary dividend of 4.84p per share announced last month. It could change its mind, of course, but, given business is booming at the supermarkets right now, income investors are interested in the sector right now. 

Unilever (LSE:ULVR) and Reckitt Benckiser (LSE:RB.) are also attracting attention because they are reliable dividend payers and their businesses are fairly defensive. Reckitt announced a final dividend of 101.6p per share in February, which requires shareholder approval on 12 May, and Unilever is due to announce a Q1 dividend later this month which would normally pay out early June. 

There really would be concern if these two tamper with their payouts.