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UK-listed businesses are scrapping plans to pay dividends in a bid to protect their balance sheets against months of disruption, hitting private investors who rely on the payouts for an income as well as pension funds.
Retailers, leisure groups and house builders have all cancelled plans for payouts to shareholders since last week in response to uncertainty over the economic fallout from the coronavirus crisis. Experts said more are set to follow.
House builder Crest Nicholson had planned dividends worth 21.8p a share in April, but on Thursday it said that it had made the “difficult decision” to cancel the payout.
“The board has carefully considered this week’s rapidly evolving government guidance in respect of Covid-19 and expects this to have a significant impact on visitor levels, production capability and trading performance over an unclear timeline,” the company said.
Elsewhere in the sector retirement housing provider McCarthy & Stone said on Wednesday that it would not be being making a payment to shareholders, while the south-east focused developer Berkeley Group last week scaled back planned payments.
It said that an extra £455m it had earmarked for shareholders to be paid through dividends and share buybacks would be postponed.
High street retailer Joules said that it would cancel its interim dividend to save £700,000 after experiencing a decline in shopper visits and revenue which had “significantly accelerated” over recent days.
Next announced that it still hoped to pay a dividend, but delayed a decision until June. It told investors: “Our current plan is to declare an interim dividend of up to 116.5p payable on 3 August, although we may decide to delay this payment by up to three months if we need cash to keep our balance sheet secure through our period of peak borrowings.”
Leisure providers also acted to scrap payouts, with brewer Shepherd Neame saying that a 6p a share dividend announced just last week would be cancelled. Yesterday, rival pub-owner Marston’s said it was likely to keep hold of £20m which would otherwise have been paid in interim dividends.
Exercise chain Gym Group has also pulled a planned £1.15 a share payment to retain £1.6m.
Rob Morgan, pensions and investment analyst at stockbroker Charles Stanley Direct, said he anticipated more companies would cut or cancel dividends.
“Management will be exercising prudence; with share prices punished so much already they will be doing what they think is right for their businesses rather than worrying about any need to maintain pay outs as a ‘show of strength’.
“Indeed, stronger businesses might think that conserving cash can provide them with opportunities in the future, perhaps via takeovers of smaller players that might be weakened. For others, of course, it is about ensuring survival.”
The cancellations will hit investors who are already struggling after huge falls in share prices.
Patrick Connolly, a financial planner at advisory firm Chase de Vere, said: “Even companies which have paid dividends for many years will struggle to maintain these payments in the future and this will have a knock-on effect for investors who are relying on dividend income.”
He said dividends were important to all investors, as they made up a significant proportion of stock market returns.
“[But] the biggest impact will be on retired people who are relying on dividends to supplement their income. These people may be faced with the dilemma of making capital withdrawals at a time when markets have fallen, using money from other assets or having to accept a lower level of income,” he added.
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