The coronavirus pandemic appears set to end the decade-long run of bumper dividend pay-outs. Since the end of the financial crisis, FTSE 100 dividend payments have almost doubled from £46bn in 2009 to about £90bn declared for 2019. Special dividends and share buybacks have been paid out on top.
In recent weeks, however, dozens of companies have announced that dividends and share buybacks will be scrapped, suspended or delayed as companies hoard cash to see them through the COVID-19 crisis. From house builders to retailers, banks to transport providers unfortunately investors’ income is being withdrawn during a backdrop of historically very low interest rates which has already impacted on savers.
At the present time investors need to be particularly cautious when looking at dividend yields. Yields look at payments in the past so are not reflective of what you will get in the future as some companies change their dividend plans.
While dividends look set to be very low for the next 3-6 months, it is hoped that companies will resume pay-outs once the current lockdown restrictions are lifted. It is worth noting that several dividend announcements have been branded as delays or suspensions, rather than cancellations.
History has shown it is better to ride-out near-term volatility and wait for markets to recover in the medium term. It is important to remember that consumption has not disappeared, it has merely been postponed. If the outbreak is contained relatively quickly, this delaying of economic activity can give markets a significant boost a little further down the line because it will lead to a surge in activity in forthcoming quarters as economies recover.
Everyone at Ramsey Crookall & Co. would like to thank you for being our valued client and wish you, your loved ones and the people around you continued good health and well-being this Easter. Stay safe and please do not hesitate to contact us if we may be able to assist you in any way.