Meaty dividend looks less vulnerable

IT’S the dividend, stupid. Since September, when Man revealed it had been hit by billions-of-pounds-worth of redemptions, its meaty payout has looked distinctly vulnerable.

Yesterday, chief executive Peter Clarke made it clear that Man is committed to paying bumper dividends, even if times are hard. From now on it will pay out 100 per cent of its adjusted management fees – equivalent to two per cent of the funds it runs – in the full year dividend.

If returns improve and it starts earning performance fees – equivalent to 20 per cent of profits – it will return that cash via special dividends or share buybacks. Hence the rally in the group’s shares yesterday. The worries about the payout – the highest in the FTSE 100 – have been eradicated. At least for now.

Of course, the management fees will only cover the dividend if there are no more tidal waves of redemptions. So far this year, things are looking more positive. Assets under management have actually edged up, from $58.4bn to $59.5bn (although this is still a far cry from the $69.1bn it managed back in March 2011). AHL, Man Group’s cash cow, has also recovered slightly, posting a gain of 2.5 per cent in the opening two months of the year.

But Man Group is still a play on the wider market. If the euro crisis flares up and market volatility returns, the computer driven AHL will flounder once again. Clients will pull out cash, management fees will tumble, and the dividend will no longer seem so secure. Income seekers beware. david.crow@cityam.com