Income investors should look beyond Britain to beat the cash squeeze

Dividend cuts by FTSE 100 companies won’t be repaired quickly – many firms were already living beyond their means. Investors should diversify abroad for sustainable high yields, says Cris Sholto Heaton.

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The outlook for income investors just keeps getting worse. Last week telecoms firm BT became the latest high-yielding British stock to suspend its dividend. A fortnight ago oil major Royal Dutch Shell reduced its payout by 66%, the first time it has cut since 1945. Taking these into account, UK firms have now reduced, suspended or cancelled around £40bn in dividends since the beginning of the coronavirus crisis – amounting to more than 40% of what they were expected to pay this year.

Overall, dividends for 2020 could fall by 53% in a worst-case scenario, reckons Link Group, which looks after the shareholder register for many of the UK’s largest firms. Since those projections include £18bn in dividends paid before the coronavirus crisis peaked, the looming cash crunch for the rest of the year is even worse than these headline figures suggests – out of £82bn previously expected between April and December, just £30bn (36%) still looks entirely safe.

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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.