23rd September 2020
INCOME INVESTORS ABOUT TO LOSE £1.5BN: WHAT NEXT AS WE ENTER ANOTHER PERIOD OF GRUELLING RESTRICTIONS?
Research from interactive investor, the UK’s second largest direct to consumer investment platform, suggests that about £1.5 billion will not be paid to shareholders in the coming days due to dividend cuts by just four stocks — Aviva, BP, Anglo American and Imperial Brands.
These high-yielding large-cap stocks are among an estimated three-quarters of companies who have cut or cancelled their dividends due to the impact of the coronavirus crisis.
As we potentially head into another gruelling six months of Coronavirus induced restrictions, where next for income investors?
It isn’t all doom and gloom, given that other popular high-yielding plays in Legal & General, Standard Life Aberdeen, GlaxoSmithKline and Diageo have all pledged to maintain their dividend levels, with payouts due in the coming days (now ex dividend - see table below).
Lee Wild, Head of Equity Strategy, interactive investor, says: “Over the next few weeks of dividend payouts, many cheques hitting investors’ doormats will be much lighter. Figuring out what good looks like has never been more difficult – another reason to scratch beyond the headline yield.
“BP is a case in point: Friday's dividend payment is to be halved to just above 4p a share, but with an implied yield of around 6%, and a new buyback strategy to return 60% of surplus cash, there are still reasons to be cheerful.
“There are other silver linings, too: Land Securities said in July that it planned to announce an interim award alongside its results in November. Earlier this month, BAE Systems paid the previously deferred 13.8p a share for 2019 trading, as well as 9.4p a share in relation to the first half of 2020.
“That said, July (and even early September) already feels like a long time ago as we all prepare for another hard slog of grim Coronavirus news. But if you’re still managing to eke out a reasonable income from shares, there is a lot to be said for focussing on the positives right now.”
Depreciating incomes
Already this week, Royal Dutch Shell has paid shareholders just 16 cents, or 12.09p, for second quarter trading, compared with the 47 cents, or 38.01p, awarded last year and every September since 2014.
Next week will see tobacco giant Imperial Brands shave its dividend payment by a third, with the introduction of a new dividend policy also set to mean Prudential investors will have to be satisfied with 4.17p a share.
The blow to investor incomes has been highly concentrated, with roughly 37% of all pay-outs in the FTSE All-Share previously generated by just five stocks, three of whom have since cut or cancelled their dividends — HSBC, Royal Dutch Shell and Lloyds.
Dividends due to be paid in coming days
Across these eight stocks, which are now all ex-dividend, just under £4 billion is due to be paid rather than almost £5.5 billion for the same period last year.
Company
Ticker
Dividend payment date
Current dividend vs last year (%)
Legal & General
LGEN
24-Sep
unchanged
Aviva
AV.
24-Sep
-36.8
BP
BP.
25-Sep
-51.6
Anglo American
AAL
25-Sep
-58.0
Standard Life Aberdeen
SLA
29-Sep
unchanged
Imperial Brands
IMB
30-Sep
-33.3
GlaxoSmithKline
GSK
08-Oct
unchanged
Diageo
DGE
08-Oct
unchanged
Source: interactive investor
The list represents what would once have been the cream of the crop for income seekers. Some observers in the City, however, argue that a number of heavyweight UK dividends were looking vulnerable even before the Covid-19 crisis struck, given the shortage of earnings capacity or dividend cover needed to support levels of shareholder payments.
Ends