investment update

Our Latest Investment Market Update

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Please find below our latest investment market commentary, as of the 4th February 2021. We continue to provide regular updates and further investment updates and observations to help support our clients.

Article written by Iain Lightfoot, Joint Managing Director, Armstrong Watson Financial Planning and Wealth Management and Richard Cole, Fund Manager at Future Money Ltd.

Market Update

Our Latest Investment Market Update

Please find below our latest investment market commentary, which on this occasion focuses on a particular area – dividends. As many investors appreciate, the profits of companies are usually paid out to shareholders in the form of dividends. Within investment funds these can be reinvested to help influence investment returns, aside from the fluctuations in the markets.

We continue to provide regular updates and further investment updates and observations to help support our clients.

Article written by Iain Lightfoot, Joint Managing Director, Armstrong Watson Financial Planning and Wealth Management and Richard Cole, Fund Manager at Future Money Ltd.

Dividend Update

A year has now passed since the start of the coronavirus crisis in stock markets.  Share prices fell dramatically across Western markets as the fear and uncertainty of the emerging pandemic took hold.  Those few weeks from late-February to mid-March 2020 saw a rapid repricing of market prospects, yet, compared to previous points of turmoil, the period of falling markets was short-lived, as the scale of economic damage became quickly apparent.  After the initial shock investors soon looked towards the management of Covid-19 and the start of the market recovery began.  One aspect of financial health that was not so quick to recover, however, was dividends. 

Payments Cut

Dividends are an important factor in many investors’ portfolios, especially to those drawing incomes from their pensions.  While many of the largest dividend paying companies come from the banking and oil sectors and so can have cyclicality in their performance, the strong cash flows and balance sheets required for dividends typically create a buffer in performance during challenging economic times.  The economic lockdowns of 2020 were so extreme though, that the dividend environment experienced severe disruption, with dividends either reduced or cancelled across large swathes of the market.  Faced with a suddenly mothballed economy and the subsequent collapse in revenues, the management teams of major listed companies slashed dividends around the world, but this was especially felt in the UK and Europe, which are traditionally dividend heavy markets. 

In some cases dividends were cut as companies could no longer afford the cash payouts, but in other cases dividends were cut due to regulatory pressure, or even reputational risk, with companies nervous of splashing the cash while so many in society were struggling. 

An oil price war between the Saudi led OPEC and Russia in March put further pressure on revenues for the oil majors, when Covid-19 damage had already been inflicted on prices, meaning that dividends were unaffordable.  Meanwhile, the banking sector in the UK and EU was banned from paying dividends, with regulators insisting on financial prudence from the banks to ensure they remained in good health (unlike in 2008!).  Housebuilders, mining companies and all sorts of other typical dividend payers were also forced to abandon planned distributions as the economic shock took hold. 

Back to 2011

Dividend seekers, therefore, faced an extremely difficult period.  Data from Link Asset Services shows that over 2020 as a whole the value of dividends paid across the UK market fell by 44%, taking the level of distributions back to 2011.  Two thirds of companies cut or cancelled their dividends between Q2 and Q4 2020.

Pressure Easing

Spring and summer last year saw the bulk of the announcements on dividend cuts, but as we moved into autumn and winter, optimism of recovery started to build as companies adjusted to new ways of working and on expectations of economic recovery.  Clearly with lockdowns still in place, economic activity remains heavily subdued, but with vaccines being rolled out and economies adjusting, businesses are finding that their finances can afford the resumptions of dividend payments.  Regulatory pressure is also easing, although not completely.  In December both the UK and EU banking authorities permitted the resumption of dividends, but at heavily restricted levels.

Partial Recovery

It appears, therefore, that the worst is now behind us in terms of dividend disruption, with regular updates in the financial press of companies restarting dividend programmes, but a resumption of pre-Covid levels appears some way off just yet. 

Along with the ongoing limits on the banking sector, many other companies have used the opportunity of last year’s cuts to rebase their dividend plans at more sustainable levels (prior to the crisis there had been increasing questions over the high proportions of earnings being paid out as dividends). 

Relatively Attractive

As such, investors reliant on dividend payments must adjust their expectations.  The work carried out by Link Asset Services predicts that the value of dividends will not return to 2019 levels until 2025, at the earliest.  While lower income payments will be disappointing, the yield on the UK market remains at a reasonable level in absolute terms and continues to be attractive relative to many other asset types.  Link predicts the yield for UK equities overall will be between 2.8% and 3.1% for 2021.  By avoiding low paying companies, dividend focused investment funds are likely to be able to provide higher levels than this.  While not quite as generous as these figures once were, in a world were yields are suppressed across markets (the 10 year gilt currently yields just 0.6% and base rates are just 0.1%), the gradual recovery of dividend investing will be warmly welcomed.

Our Philosophy

Our philosophy is that no one can predict the peaks and troughs of financial markets with any accuracy and it has always been extraordinarily difficult to time when the best (peaks) and worst (troughs) are. Timing the stock market is extremely difficult, so we believe it is best avoided. Volatility is a part of investing which is why we always take time to understand how much risk any client is prepared to take before investing. We also generally believe in the benefit of diversification of assets to help manage some of the extremes of the markets. Taking a diversified multi-asset approach means that some assets can fair better in different market conditions as they are more defensive assets such as bonds, whereas during periods of growth equities tend to fair better.

Armstrong Watson, in addition to our full range of accountancy services, also have access to fund management expertise from the Future Money asset management team, as well as independent expertise from the wider market. We are able to use this to help provide insight, commentary, advice and support to our financial planning and wealth management clients.

A key aspect of our investment philosophy is that it is time in the market not timing the market, which is usually the best approach.

At Armstrong Watson, our quest is to help our clients achieve prosperity, a secure future and peace of mind. We believe that for those people who are considering taking financial advice and want to take advantage of all existing reliefs and allowances now may be a good time to do so.

Important Information

Please note that the contents are based on the author’s opinion and are not intended as investment advice. Past performance is not a reliable indicator of future performance. The value of investments and the income derived from them can fall as well as rise and investors may get back less than they invested

For more information and guidance on Investing, please download our handy guide to Investing here.


If you would like to discuss your investment portfolio following the Covid-19 outbreak, please speak with one of our Financial Planning Consultants on 0808 144 5575 or email us.

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The deadline for February’s claims is 15 March 2021, so please submit claims to jrs@armstrongwatson.co.uk.