Coronavirus: dividends fall to record lows
Hundreds of UK companies cancel payments to investors
21st July 2020 12:25
by Brean Horne from interactive investor
Hundreds of UK companies cancel payments to investors
Dividends paid to investors have fallen 57.2% to £16.1 billion over the last three months due to the coronavirus outbreak, data from Link Group shows.
Some 176 companies cancelled their dividends during the period, 126 of which did a u-turn on dividends they had promised to pay.
Around 30 firms reduced the level of dividends paid out.
This makes the second quarter of 2020 the worst on record for the payments.
What are dividends?
Dividends are a proportion of a company’s profits returned to its shareholders.
A big company cutting back on its payout is usually seen as a red flag. It implies the firm is not making a big enough profit, is not confident about the future, or is running out of capital.
Why have dividends fallen?
Coronavirus caused unprecedented cuts to these payments from April to June 2020.
This is because UK companies wanted to protect themselves against the financial impact of the pandemic by cutting their costs.
Which industries were worst affected?
The financial sector faced the most severe dividend cuts.
This is due to the Bank of England demanding that banks cancel dividend payouts for 2020.
Oil and gas also slashed dividends paid over the last quarter.
Most notably, Shell reduced its £11.8 billion payout by two thirds, the first reduction made by the firm since World War II.
Will dividends will survive?
Experts predict that the pandemic will trigger a change in the way that companies pay dividends in the future.
Colin Morton, lead manager at Franklin Templeton, says: “We do not think the pandemic will fundamentally break the concept of a steadily rising and consistent dividend story in the United Kingdom. What will likely happen is a refreshed approach—it will make businesses think differently about how they pay dividends.”
He continues: “in a normal type of economic scenario, however, we think many companies with quality businesses and good long-term prospects should be able to keep growing their dividends, albeit from a lower base.”
This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.
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