Reinvested dividends are key to long-term returns. Unfortunately, there will be a lot less income to go round this year. About 40% of British companies have cut or scrapped dividends, including Shell and there is likely to be more pain ahead.
The dividend axe could cost pension funds and income investors nearly £85bn in lost income over two years, says Hugo Duncan in the Daily Mail. Almost half of UK dividends could be cut this year, implying a fall in overall payouts to £47.2bn for 2020. The US preference for share buybacks gives corporate America more flexibility when it needs to hoard cash, but Europe’s dividend payers have no such luck, says Mark Peden of Kames Capital.
British firms rank “in the bottom quarter for dividend prospects” because of the FTSE’s over-reliance on the hard-hit financial and energy industries. The service sector is also in a bad way: will businesses such as M&S and Carnival “ever pay dividends again?” British boards are not letting a good “crisis go to waste”, says Fundsmith CEO Terry Smith in the Financial Times. Earnings should be about twice dividends if payouts are to be sustainable. Yet earlier this year some top UK dividend stocks were barely covering payouts. “Smaller and more sustainable” dividends could be the new normal.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Executives who regard Covid-19 as cover for overdue dividend cuts are being short-sighted, says Jeremy Warner in The Daily Telegraph. Companies use stockmarkets to raise capital, but investors will be loath to pay up in the future if they think the dividend is not secure. A broader problem is that British income investors are far too reliant on the fortunes of declining industries such as oil. The FTSE is full of “mature, income paying stocks” but relatively few young and exciting “growth companies”.
-
8 of the best properties for sale with equestrian facilitiesThe best properties for sale with equestrian facilities – from a Georgian manor in Ceredigion, Wales, to a period farmhouse with an equine swimming pool in Banbury, Oxfordshire
-
Energy bills to rise by 1.2% in January 2025Energy bills are set to rise 1.2% in the New Year when the latest energy price cap comes into play, Ofgem has confirmed
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
Best investing appsLooking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go? We round up the best investing apps
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
