How income from options could prove illusory

Funds that use call options to supplement dividends can offer higher yields, but this usually comes at the cost of lower long-term returns.

Soft Drinks © Kadir Aktay / Alamy Stock Photo
Britvic sells Pepsi’s products in the UK © Alamy
(Image credit: Soft Drinks © Kadir Aktay / Alamy Stock Photo)

The outlook for income investors keeps getting bleaker. This week, soft-drinks maker Britvic became the latest company to delay its dividend, despite reporting solid profits. It’s not the biggest payer around, but it’s a good example of how companies are taking an exceptionally cautious approach and hoarding cash as much as possible in such uncertain times.

The amount of dividends already skipped by UK companies comes to more than £30bn – and given that many of the largest payers have confirmed that they will be making reduced or no payments for the rest of this year, the final tally will be much worse. It’s difficult to imagine this rebounding quickly. So standard equity-income portfolios are likely to offer a lower yield even after the immediate crisis passes. And income-focused investment trusts that tap into reserves to maintain payouts are likely to find that cuts can only be postponed for so long.

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.