As the UK endures yet another period of lockdown, we exit 2020 having witnessed a last minute Brexit deal, the start of a vaccination programme, and a strong period of reporting for UK listed companies. Analysts were quick to cut their forecasts sharply at the start of the pandemic, and as activity then picked up through the year, and confidence increased following a raft of vaccine announcements, the results we have seen from UK listed companies over the last month or so has been very encouraging relative to analyst expectations.
Estimate momentum (analyst upgrades vs downgrades) was negative during spring of 2020, stabilising over the summer and then turning positive moving into the end of the year. This has also fed through to dividends, with estimates reaching a trough in Q4 2020. The latest lockdown is likely to dampen any possibility of widespread upside dividend surprises in the first quarter of 2021, but should the vaccination programme continue apace and life return to some semblance of normality in the second half of the year, we could see a significant increase in dividend payments.
Portfolio positioning of the UK Equity Income Fund
Throughout 2020 our unconstrained approach has allowed us to maintain a balance in the UK Equity Income portfolio between defensive companies which perhaps have benefitted from the crisis and therefore been able to pay dividends; for example, value added resellers of technology equipment such as Computacenter, and companies which have suffered more and paid no dividends yet have the potential to bounce back significantly; such as National Express, a transportation company offering public and school bus services.
Since the vaccine announcements in Q4, we have continued to add to transport and leisure stocks, banks, and industrials, but with a continued focus on companies that have a strong balance sheet, an attractive offering and stand to benefit from weaker competition going forward. Despite this mix of companies that have paid dividends and those that have not in 2020, the fund has maintained a healthy yield premium to the FTSE All-share and currently offers a 12 month forward underlying dividend yield from the portfolio of 4%, compared to the benchmark at 3.6%, together with higher earnings and cash cover.
For more information on the JPM UK Equity Income Fund, please click here.
The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell. Past performance and yield are not a reliable indicator of current and future results
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