For UK income investors, last year might seem to have been nothing short of a calamity. The dividend pool for FTSE 100 companies was pared back by a dramatic 40% as management teams sought to shore up balance sheets or to share the wider economic burden of the health crisis. For some critics of income investing, this might seem the final nail in the coffin of an ailing investment area. For investors, the year has produced an extraordinary dividend reset, with yield and growth prospects now more sustainable than they have been for years.

A good way to view this opportunity is to look back at some of the key lessons of 2020. The first of these is that the quality and quantity of a company’s return matters just as much as the quantum of profits, if not more. About half of the dividend cuts made last year are likely to be permanent as they were made by inherently low return-on-equity businesses from sectors such as banks, oil producers, telecoms, utilities and real estate with pre-existing industry specific problems and therefore dividend pressures.