Dividend cuts – not all bad?
UK dividends experienced their biggest quarterly fall on record in Q2 2020, dropping by over £22bn (57%) to give a total payout of £16bn. Dividends were cancelled by 176 companies and reduced by at least a further 30. BP cut its dividend for the first time in a decade, with a 50% reduction to 5.25 cents a share, compared to 10.5 cents in Q1.
Despite an array of dividend cuts in the wake of the pandemic and the subsequent impact on income, a contingent of fund managers see these cuts as prudent moves by the businesses who have made them to preserve their capital expenditure in the short-term:
“The rebasing of dividends across the UK stock market is an opportunity for companies to reallocate capital more sensibly.”
Carl Stick, Rathbone Unit Trust Management
“In ordinary times, a dividend cut is a sign of failure. In these exceptional circumstances, however, it reflects sensible short-term capital allocation.”
Martin Cholwill, Royal London
“The pandemic has resulted in a great deal of uncertainty for all businesses. Even those whose trading has been unaffected, have still faced issues with supply chains and distribution networks. So, reducing capital expenditures like dividends is prudent. There have been some big cuts but what is key is what happens over the longer term. Dividends will be back, but for now, balance sheets and liquidity are paramount.”
Richard Colwell, Columbia Threadneedle
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