UK dividend cuts in 2020 are expected to double those seen during the throes of the 2008 Global Financial Crisis (GFC), amid warnings that FTSE 100 firms have been overstretching themselves through their dividend payouts "for some time".
Investors are now anticipating it will take just a handful of firms to "make or break" the blue-chip index's 2020 dividend yield amid the coronavirus pandemic, given it is so dependent on a small number of companies to maintain its current 4.4% yield.
On Thursday (30 April), oil giant Shell - which had the highest anticipated 2020 yield in the FTSE 100 at 10.2% and was forecast to pay out more than £11bn in dividends to investors - announced its first dividend cut in 80 years following a freefall in the oil price as markets responded to the coronavirus pandemic.
Research from AJ Bell showed that, prior to Shell's dividend cut, the ten biggest dividend payers were forecast to pay out 66% of the FTSE's average yield, amounting to a total of £42bn.
AJ Bell's research also found that, in 2019, Shell and fellow oil major BP accounted for 24% of 2019's UK dividend payments alone. Other large constituents of the FTSE 100 index to have already cut pay-outs include HSBC, Glencore, Lloyds, Persimmon and Standard Chartered.
"A total of 38 FTSE 100 firms have already cut, deferred, suspended or cancelled over £18bn worth of special or ordinary dividends for 2019 or 2020 - and 14 more have put share buyback programmes into the deep freeze," AJ Bell's Russ Mould said.
"When you have Next going from a well-run, well-funded source of dividends, special dividends and share buybacks to paying nothing in 2020, then it is pretty clear few sectors or companies can be seen as safe."
Robin Geffen, manager of the £270m Liontrust Income fund, said the spread of Covid-19 and its subsequent economic impact has "accelerated a trend that we have been warning clients and investors about for the past year".
"Some of the very high-yielding companies in the UK have not had the earnings capacity or dividend cover to support their levels of income. This has included many of the traditional income stocks," he said.
"We predicted that unless operational performance improved, which would require significant capital expenditure, such companies would not be able to maintain their dividend levels."
Matthew Jennings, investment director at Fidelity International, said that in the 2008 GFC, dividends were cut by more than 20% on average - a figure he "more than likely" expects to double in the current economic downturn.
However, Jennings added: "In normal times, dividend cuts can signal a company in distress. But when it is the economy itself that is in distress, cutting or delaying dividend payments can be a sign of corporate prudence."
George Lagarias, chief economist at Mazars, agreed that many FTSE firms have the cash flow to withstand some of the lockdown pressures, but warned companies against curtailing dividends significantly and thereby losing their shareholders' trust.
"The major constraint will be for companies that have received state aid. Even if they are allowed to pay dividends, they might chose not to, to avoid provoking public sentiment," he added.