Dividends down but oil still safe

AT LEAST a quarter of FTSE 350 companies will reduce or scrap their dividends over the next twelve months, according to private bank Brown Shipley.

For investors to off-set the fall in income from assets, it says equities will need to be selected on their probability of actually paying the dividends, and over-weighting the key sectors such as oil and utilities.

The bank points to latest figures from BP and Shell and says they demonstrate their “monumental” cashflows, and the effects these can have on dividend payments.

Peter Botham, chief investment officer based in Brown Shipley’s Manchester office, said: “Not only did BP raise the third quarter dividend by 29% but, in a rare bit of good news for shareholders, the weakness of the pound against the dollar will mean a 40% increase for UK based investors.

“It is becoming clear that oil will now replace banks as the most sought after sector for income managers, and this is reflected in the recent out-performance of both oil majors.”

He added that current equities market levels present an opportunity to invest which will be rewarded over the medium term.

“The impending recession does not mean that we should be piling into cyclical sectors just yet, as there will be plenty of bad news still to come.

“Stock markets always move in anticipation of an event, but it is unlikely that we have reached the inflexion point. In essence, don’t chase the excitement: stay dull but safe,” he said.