Robin Geffen: dividend cuts aren't all down to Covid

The seeds of recent dividend cuts and cancellations were sowed many years ago, says veteran investor Robin Geffen.

Robin Geffen, fund manager, Liontrust

Investors shouldn’t blame all of their dividend income problems on this “very challenging year”, veteran fund manager Robin Geffen tells Morningstar. “The seeds of this whole issue of dividend cuts and cancellations” were sowed many years ago, as exposure to individual “dividend risk” became too extreme. 

More and more funds were “clustered in a very small group of high-yielding stocks that were basically paying dividends they couldn’t afford”. This included the big FTSE 100 dividend stalwarts such as the banks (Barclays, NatWest, Lloyds, HSBC) and others such as Vodafone and BP that paid “unsustainably high dividends” and “weren’t reinvesting in their own future”, says Geffen. When they “hit the buffers”, payouts were slashed.

The crisis shows that investors need to pay more attention to dividend cover, leverage and cash, and to focus on “dividends that can repeat and grow”. Geffen has nearly 25% of his fund in tech stocks, such as Apple, Mastercard, Microsoft and Visa, which are “remarkable companies… many of them have virtually no debt… and have incredibly high dividend cover”. 

Of course, that high dividend cover implies that many could be paying out more than they are, and that should happen: “I believe that [firms] like Amazon and Alphabet will start paying dividends because they are generating so much cash.” But it’s equally important that “they’re continuing to invest in their own future… making that investment in order to carry on growing at these astonishing rates”.

Recommended

Model Y: Tesla has nailed it once again
Cars

Model Y: Tesla has nailed it once again

The electric carmaker’s new SUV crossover, the Model Y, sets the benchmark in the sector.
18 Jan 2022
The UK jobs market is booming – but wages are struggling to keep up with prices
UK Economy

The UK jobs market is booming – but wages are struggling to keep up with prices

Britain’s jobs market is booming, with wages rising and plenty of of vacancies. But inflation is rising faster than wages can keep up. John Stepek loo…
18 Jan 2022
A sophisticated trio of scintillating whites
Wine

A sophisticated trio of scintillating whites

An Australian sauvignon blanc that is as sophisticated and refreshing as any Loire superstar’s creation, plus a chardonnay and shiraz, too.
18 Jan 2022
Made money in cryptocurrencies? Don’t forget to pay your taxes – in sterling
Bitcoin & crypto

Made money in cryptocurrencies? Don’t forget to pay your taxes – in sterling

Speculating on cryptocurrencies is akin to gambling in all but one respect, says Merryn Somerset Webb: you must pay tax on any gains, and you must pay…
18 Jan 2022

Most Popular

Five unexpected events that could shock the markets in 2022
Stockmarkets

Five unexpected events that could shock the markets in 2022

Forget Covid-19 – it’s the unexpected twists that will rattle markets in 2022, says Matthew Lynn. Here are five possibilities
31 Dec 2021
Which investment trusts performed the best in 2021?
Investment trusts

Which investment trusts performed the best in 2021?

Shivani Khandekar runs through the top ten investment trusts of 2021 – and the worst performing trusts – and looks ahead to 2022.
7 Jan 2022
Interest rates might rise faster than expected – what does that mean for your money?
Global Economy

Interest rates might rise faster than expected – what does that mean for your money?

The idea that the US Federal Reserve could raise interest rates much earlier than anticipated has upset the markets. John Stepek explains why, and wha…
6 Jan 2022