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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The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.

The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.

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100-word briefing: the first Budget

In current terms 'The Budget is a statement made to the House of Commons by the Chancellor of the Exchequer on the nation’s finances and the Government’s proposals for changes to taxation.' So, when was the earliest one? It was certainly before 1860, when William Gladstone was using the red despatch box discarded in 2011 by George Osborne. Indeed, the national Budget predates the House of Commons (1341), going back at least 800 years to soon after the Magna Carta of 1215, when the equivalent of the Chancellor’s despatch box was a leather bag – called a ‘bougette’ in Old French.