Dividend plays took a significant hit this fiscal year as payouts were cut or halted by companies as they preferred holding on to cash amid a pandemic. With normalcy looking closer than ever before, dividends could be back on track. “Consensus expects that Europe will not recover back to the FY18 DPS level even by FY22. Over the same period, Asia and US dividends will be 20% ahead,” said analysts at Jefferies. The financial performance of firms has been improving over the quarters now as they step out of the pandemic.

“In our view, a large portion of the dividend cuts were temporary or forced, and markets are underestimating the recovery. As the world opens up post-COVID, we believe that dividend recovery will surprise investors,” Jefferies said. The report highlighted that globally, around 34% of companies are set to cut dividends for this fiscal year, but those cuts are set to drop to just 8.5% for the next financial year. 

Talking sector-specific, Jefferies said that financials, cyclicals including commodities, industrials and consumer discretionary reported the largest dividend cuts in 2020 but will also be the ones to witness the strongest growth in 2021. Consumer discretionary space, followed by materials and financials are expected to witness the best dividend recovery. 

Also Read: Wall Street might have priced in a lot, but Morgan Stanley expects upside surprises in these sectors

“While consensus already expects a large section of the stocks to recover back to previous DPS peak, we believe that there will be far more stocks that will exceed expectations,” the report said. However, although the dividend is expected to recovery it will still be significantly less than what was paid out during 2018-2019.

Among the US-listed stocks that analysts at Jefferies believe to dividend recovery plays include; 

  • General Electric: Expected 2021 dividend yield – 0.3%
  • Kraft Heinz: Expected 2021 dividend yield – 4.3%
  • Autoliv: Expected 2021 dividend yield – 2.2%
  • Kohl’s: Expected 2021 dividend yield – 3.7%
  • Foot Locker: Expected 2021 dividend yield – 2.5%
  • Spirit Realty Capital: Expected 2021 dividend yield – 5.8%
  • AltaGas: Expected 2021 dividend yield – 5%
  • New Residential Invt: Expected 2021 dividend yield – 9.1%
  • Norbord: Expected 2021 dividend yield – 4.8%
  • Lexington Realty Trust: Expected 2021 dividend yield – 3.9%
  • Patterson Cos: Expected 2021 dividend yield – 2.8%