£250m dividend hit as East Midlands companies preserve cash

More than £250m of previously-promised dividend payments have been held back by the region’s stock market-listed companies as part of their efforts to cut costs and preserve cash.

The deferred dividends include £100m from housebuilder Barratt Developments and £83m from builders’ merchants Travis Perkins.

The East Midlands construction sector has also seen Ibstock, Forterra and Van Elle keep shareholder payments back, while retail problems has affected dividends at Topps Tiles, Dunelm and Shoe Zone.

They join dozens of UK companies to take the drastic decision in response to the coronavirus crisis, with almost all of the £4bn-plus dividends deferred in 2020 having been pulled back in the last fortnight.

The largest to date have come from the housebuilding sector, led by £752m retained by Persimmon and £486m by Taylor Wimpey.

There are six other companies which have deferred shareholder payouts of more than £100m – broadcaster ITV, £216m, software business MicroFocus £165m, B&Q and Screwfix owner Kingfisher £158m, retail giant Marks & Spencer £132m, student accommodation provider Unite £121m, and Crowne Plaza and Holiday Inn hotel group InterContinental Hotels £120m.

Leicester wealth management firm Mattioli Woods was one of nine companies to maintain planned dividend payments last week, although its £2.0m was dwarfed by SSE’s £582m and CCH’s £209m commitments.

“The businesses involved are all very different,” said AJ Bell investment director Russ Mould.

“Investors can take some pointers, even if a long lockdown period and any deep recession could test the resolve of even the most determined payer of dividends.”

Mould suggested it will be those businesses with stable revenues streams or that supply basic needs for those who are stuck as home, have robust balance sheets and cash at hand, and good levels of interest cover and earnings cover that are best placed to pay dividends to shareholders in the coming months.

In total those nine companies confirmed payments of £970.4m, compared with 94 companies which last week pulled back on a total of £3.4bn.

By comparison only Card Factory in January and three in February – Intu, Hammerson and McColl’s Retail – deferred or cut dividends, all victims of problems in the retail sector.

But now all stock market-listed companies are having to respond to the fast-changing outlook while in the public spotlight, which is itself creating additional challenges.

Knights made a company-wide pay cut of 10%, which applies to those earning more than £30,000 a year and only told staff a day before it was announced to the London Stock Exchange.

Some of that communication pressure is being eased, after the Financial Conduct Authority (FCA) “strongly requested” companies listed on the main market observed a voluntary moratorium on issuing preliminary results for two weeks.

The FCA said : “Investors in capital markets rely on trustworthy information on the companies whose instruments they trade. The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly.”

Companies must still abide by the Market Abuse Regulations, which require companies to announce inside information to the market as soon as possible.

Many companies reporting in the last few days have declined to provide guidance for the 2021 financial year and in some cases have also said they can no longer provide guidance for their current financial year, which in some cases finishes in the next few weeks.

AJ Bell’s Mould added: “Shareholders are realistic enough to know that profit forecasts are likely to be wrong and are looking instead for guidance on how the financial resources available to a firm, its banking covenants and what levers management can pull to help ensure that a company can come through the crisis and be ready for the eventual upturn.

“If a dividend cut is part of the near-term price that must be paid to ensure a firm’s long-term survival or avoid a major rights issue or debt-for-equity swap, then investors may well come to accept it, even if the loss of the precious payments is a big blow.”