Where are the dividend heroes?

13 August 2021

5 minute read

In 2020, a huge swathe of UK companies cut, suspended or cancelled their dividend payments in an attempt to shore up their balance sheets, to weather the financial impact of the global pandemic. This has left income investors with a large hole in their portfolios. But 12 months on, we’re seeing a remarkable recovery. Companies are now reinstating their dividends at a phenomenal pace, and fund managers are acting quickly to find the best opportunities.

Who's it for? Investors with basic investment knowledge

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice. Past performance is not a guide to future performance.

Reliable and sustainable yields are a priority for most income-seeking investors. But 2020 was a shocker, as three quarters of UK companies cancelled or cut dividends. What we are seeing today is a remarkable recovery, but it still has further to run. The Dividend Heroes are the fund managers who have a track record in managing through a crisis, navigating the market to find those companies which have the potential to recover quickest.

The 2020 cuts

What happened in 2020 was unprecedented1. The cut in dividend payments was even larger than what we saw in 2008/09, after the Financial Crisis. As the coronavirus crisis deepened, UK companies scrapped dividend payments, in an attempt to save cash and survive during lockdown. It was widely anticipated that it could take many years for dividends paid by UK companies to return to levels they were at pre-pandemic.

The 2021 recovery

Fast forward to 2021 and we see that dividends have staged a dramatic recovery, as companies have started payments again. According to data released by Link Group, total dividends paid by UK companies during the three months to the end of June were up over 50% compared to the same period last year. Link Group expect dividends to continue to grow in 2021, resulting in a total amount paid this year of £79.5bn. This is still below the £100bn level before the pandemic, but it tells us that the recovery is under way.

Stronger than expected recovery

In a July update to investors, Clive Beagles, Fund Manager of the JO Hambro UK Equity Income Fund, explained how he believes the recovery in dividends could be stronger than the market is expecting. Clive says, “We are now halfway through 2021, and the UK economy is exiting from the Covid-19 period much stronger than expected. This strong profit and recovery performance is feeding through to companies making positive dividend decisions – both in terms of the timing and size of those dividends. As a result, this is leading to better-than-forecast dividend growth.”

There are three funds on the Barclays Funds List which invest in UK companies and have a high dividend yield. Each of the funds have a very different approach to investing, and each one warrants their place on the Barclays Funds List.

Artemis Income Fund

Launched over 20 years ago, it seems like this fund has been around for much longer, which is one of the reasons why we, at Barclays, consider it to be one of the stalwarts of the UK Equity Income market.And it’s easy to understand why – an experienced team sticks to a simple, but successful, approach to investing. They look for cheap companies that are strong, generating enough cash to keep growing their dividends over time, while at the same time delivering capital growth. Simple.

JO Hambro UK Equity Income Fund

A large and successful fund managed by two experienced fund managers – Clive Beagles and James Lowen – aiming to deliver a steady, if not rising, income as well as capital growth. The duo’s focus on companies that pay dividends leads them to investing in medium and smaller sized businesses, which has benefited performance over the long term, in comparison to funds focused on larger companies.

Man GLG UK Income Fund

This fund looks for companies that satisfy three criteria – they must be growing their earnings at a rate faster than the market is expecting, they must currently look cheap in comparison to other companies and they must be paying a dividend. Like other funds that make it onto the Barclays Funds List, we like the fact that the team sticks to a rigorous and successful investment process.

Where is the superhero?

The truth is, there is no superhero. The scars of the dividend cuts in 2020 will take some time to heal. It’s not an overnight process. But these three ‘Dividend Heroes’ can help. While the future may be uncertain, income-seeking investors may wish to consider these three funds in their investment portfolio.

These three funds are part of the Barclays Funds List, where there are plenty other areas to invest in and funds to choose from. Find out more about our Funds List.

To diversify your investment, you may like to consider our own Barclays Ready-made Investments. The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Past performance of the fund and its manager are not a reliable indicator of their future performance. We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years. These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Read the Assessment of Value report [PDF, 3.2MB] for funds run by Barclays.

Correct at the time of publishing.

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