Classic income stocks faced a perfect storm in 2020. Since the start of 2019, mature, cash-generative businesses have been out of favour because low bond yields powered a rerating of growth stocks. The pandemic resulted in even greater crowding in already expensive safe havens, with heightened speculation in stay-at-home and Green New Deal winners.

The remarkable efficacy of several vaccines is a game changer for dividend stocks.

However, the remarkable efficacy of several vaccines is a game changer for dividend stocks. Europe’s second lockdowns have been less disruptive than those in the spring. As a result, the pandemic has acted as a massive dividend stress test. In time, those still paying good dividends should be rewarded for their resilience in an environment where vaccines offer a path to normalisation. We already see positive momentum in dividends as some companies have reinstated payouts.

We see parallels to the TMT bubble, in which old economy parts of the index derated to low valuations while other parts of the economy became overvalued. Companies being disrupted by technology will be value traps. Despite this, we see plenty of opportunities between these disrupted, deep value stocks and extremely expensive growth stocks. We think sectors like pharma, telecoms, non-life insurance and consumer staples offer resilient, compelling dividends in a zero interest rate world.