Nearly half of UK companies have scrapped dividend payouts as the coronavirus crisis batters business.
The pace of dividend cuts has accelerated since the FTSE 100 slumped to its lowest point in over 25 years last month.
Link Group’s UK dividend monitor shows 45 per cent of UK companies have scrapped payments, worth £28.2bn. It represents one third of the dividends Link had expected listed companies to pay over the rest of the year.
The data firm flags a further £23.9bn to be at risk for this year, equivalent to 29 per cent of April-December payouts. The rest – £29.6bn, is judged to be safe.
The biggest impact comes from banks, which slashed dividends by £13.6bn. Barclays, RBS, HSBC and Lloyds all cut dividends last week following a request from the Bank of England’s Prudential Regulation Authority (PRA).
This morning UK insurers were the latest companies to cut dividends following pressure from the BoE. Sam Woods, deputy governor of PRA, wrote to chief executives of major insurers last week. He asked them to “pay close attention to the need to protect policyholders and maintain safety and soundness” on any dividend or bonus decisions.
Classic defensive dividends, such as food and retail, are more likely to be safe in the coming months.
Link Group has withdrawn a formal forecast for 2020 until the economic impact of the coronavirus crisis has become clearer.
In the best scenario deal, the firm predicts dividends will fall 27 per cent to £71.9bn. A more realistic, upper bound situation will see a fall of 32 per cent to £67.3bn.
The worst case would be a 51 per cent drop to £48bn while a lower realistic scenario would see a 39 per cent fall to £60bn.
Coronavirus dents profits
The outbreak of coronavirus will lop £170bn off UK profits, according to Link’s estimates.
The first quarter was the third consecutive quarter of profit declines, even before the effect of Covid-19 was really felt.
Just 42 per cent of UK companies reported rising profits in the first quarter, the lowest proportion since 2009. As a result, the UK’s earnings recession deepened and widened, with pre-tax profits plunging 29.8 per cent year-on-year.
However even when UK profits fell by two thirds in the last recession, dividends only dropped by around 15 per cent peak-to-trough.
Chief executive of Link Group’s global corporate markets division, Susan Ring, said: “At the worst point in the financial crisis as the stock market crashed, the yield on UK shares rose to 4.9%. The decline in this recession will be greater.”
“We have seen many dividends delayed or cancelled already as companies look to preserve cash in order to protect themselves against a cessation in business, and there will be much more. If the Covid19 crisis is short and sharp, we may look back on this moment as a historic buying opportunity.”