Companies axe £500m-worth of dividend payouts in one day to conserve cash

Half a billion pounds of dividend cuts have been announced today as companies try to conserve funds in the face of the coronavirus outbreak.

The cuts will hit equity portfolio holders and savers who are already suffering from the unprecedented interest rate cut last week.

Among the latest firms to announce changes to their dividend policies today was Manchester clothing and online retailer N Brown.

Last Friday, Runcorn-based workwear and hotel linen supplier Johnson Service Group also announced similar plans.

Russ Mould, investment director at Manchester-based investment platform AJ Bell said: “It is another brutal day for income-seekers as 10 more UK firms announce dividend cuts and an 11th – Britvic – joins Next and National Express in reviewing its pay-out as part of its contingency planning.

“The loss of income from today alone totals some £500m and takes the running aggregate this year to some £1.5bn, a big blow for portfolio builders and savers who are looking for income at a time when interest rates on cash are reaching new historic lows.

“The pace of cuts is picking up, too, and more look inevitable as companies scramble to preserve cash and management teams accept their share prices are getting little or no support from any commitments to defend a dividend.

“In some cases, investors are almost greeting the news of a cut with relief.

“Kingfisher’s shares are up today, as are those of Go-Ahead, although shareholders in ITV appear less pleased, given the firm’s commitment to its 8p-a-share dividend for both 2019 and 2020 less than three weeks ago.

“That shows how fast-moving the situation remains and how difficult it is for companies to plan.

“Yet investors are keen to hear how boardrooms are responding to the drop in business that they are facing.

“They will be looking for detail on plans to cut costs, husband cash and weather the coming downturn.”

He added: “This is what investors are looking for now and they are the comments by which they will set great store.

“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.”

Share buybacks are also falling by the wayside, too, said Mr Mould.

Just after 9am this morning Fraser Group, formerly Sports Direct, announced it will suspend its planned share buyback with immediate effect.

“Pearson and Shell have joined Playtech, Inchcape and Direct Line in putting their buyback programmes on hold.

“This makes perfect sense in the near term as it is a quick and easy way to preserve cash, although it does question the long-term value of buyback schemes as it could be argued that boardrooms have fallen into the trap of buying near the top.

“The programmes have offered no support to share price at all, either, which is something else to consider in the future.”

Mr Mould also criticised the Financial Conduct Authority’s (FCA) call to company’s to delay publication of preliminary results today.

He said: “The FCA’s desire to avoid stoking panic is perfectly understandable but the call for a delay in the publication of preliminary results leaves firms in a difficult position.

“Companies are duty bound to update the market once it becomes clear that their results are likely to be notably ahead or behind forecasts.

“In the current environment, no-one expects firms to be able to give precise forecasts as to the potential downturn they are facing or the impact it may have on sales, profits and – above all – cash flow. And share prices are already anticipating massive downgrades anyway.

“What shareholders and analysts are looking for is comment from management on what they are doing to preserve cash and give their company every chance of coming out the other side of the crisis and be ready for the eventual upturn.

“In the absence of information, people will make things up.

“This isn’t a positive step and has now got people posing the question of shutting down markets. This would be a catastrophe and represents the single biggest policy risk to the financial world right now.

“You don’t give up on price discovery because you don’t like the price. You don’t remove liquidity and access to savings when people are seeing a shuddering halt in their cash flows.

“The absence of commentary from management on their financial and contingency planning is far more likely to lead to a disorderly market than one where boards are doing their best to communicate in as realistic a fashion as is possible in the current circumstances.

“This is what investors are looking for now. They know forecasts are likely to be wrong, are pricing in dividend cuts and are already expecting bad news.”