- Dividend pay-out forecast for the FTSE 100 companies has nearly halved due to the pandemic
- The world’s biggest firms have cut dividend pay-outs anywhere in a range of 17 to 23 per cent
- Slashing or cancelling of dividends does not mean a company is fundamentally weak
The pandemic has pushed the British economy into a recession which has forced many big guns to scrap their dividend payments for the year 2020. The companies’ decision to suspend dividend further tracks back to the regulatory directives under which the government urged the British companies, particularly banks, to put on hold dividend pay-outs and hold cash that would be required to support the wider economy during the coronavirus crisis.
According to government directives amid coronavirus crisis, UK Financial Conduct Authority (FCA) issued a letter asking British companies to delay the publishing of preliminary financial results for at least two weeks, during the peak of the novel coronavirus. The accelerating coronavirus crisis has forced several British companies to scrap dividend payments to shareholders.
The UK economy has officially entered a recession by contracting consecutively for the second quarter in a row during Q2 (April-June) 2020. The 20.4 per cent drop for the quarter was a sharp one, and encompassed almost all the sectors of the economy, according to the latest ONS (Office for National Statistics) data.
Now there is a report that the world’s biggest firms have cut dividend pay-outs anywhere in a range of 17 to 23 per cent. As per the report, 27 per cent of the companies across the globe have cut their dividend pay outs and with Europe emerging as top among them. Several of the UK companies have also cut their dividends or delayed it until further notice.
During the second quarter, there was a substantial decrease in dividends paid out by the A-listers, as they were trying to conserve cash during the unprecedented crisis. The outlook still remains gloomy due to prevalent uncertainties with reference to Brexit and the second wave of coronavirus pandemic.
According to leading market experts, the dividend pay-out forecast for the FTSE 100 companies has fallen by nearly 50 per cent from more than £90 billion in January 2020. Around 50 odd companies listed in London’s broader equity index have either slashed or cancelled their dividend pay-outs due to the economic impact of the coronavirus pandemic.
To date, the total amount of dividend withdrawn has reached billions of pounds as almost all the industries are feeling the jitters of economic disruption caused by the pandemic. The list of banks that have already announced the dividend cut includes major high street lenders like Barclays, Lloyds, NatWest Group Plc, British Telecom, and HSBC.
In this article, we would put the lens through some companies which have slashed/cancelled their dividend pay-outs.
- British Telecom
The giant British Telecom Group (LON: BT.A) has joined the bandwagon to take a historical move of dividend suspension, not taken in the last ten years. That means the company would pay nothing at all for the full fiscal year to March 2021 along with no final dividend to March 2020. The decision comes in support of the company’s plan to establish a 5G network and next-generation full-fibre broadband throughout the United Kingdom.
- Barclays Plc (LON: BARC)
In a bid to preserve its CET1 ratio (capital adequacy requirement), Barclays Plc cancelled the dividend for the full year 2019. Due to the economic impact of COVID-19 pandemic, the Board decided to cancel the previously announced dividend pay-out of 6 pence per share for the fiscal year 2019.
Although the Group’s income was up by 8 per cent to £11,621 million in first half of 2020, the credit impairment charges have risen drastically by nearly four times to £3,738 million in the wake of coronavirus pandemic (H1 2019: £928 million). The board is yet to decide on its capital returns policy and future dividends of 2020.
- Lloyds Banking Group Plc (LON: LLOY)
The board decided to cancel the dividend pay-out for 2019 on 31 March 2020. The bank would not be paying any dividends until the end of 2020 due to the unprecedented challenges presented by the coronavirus pandemic. The FTSE 100 listed bank’s net interest income was down by16 per cent to £1,222 million from prior year. In addition, the bank’s credit impairments increased significantly to £1,519 million.
- NatWest Group Plc (LON: NWG)
In response to Covid-19 pandemic, the bank cancelled the proposed 2019 dividend payment and associated pension contribution in Q1 2020, which led to an increase in CET1 ratio by 100 basis points to 17.2 per cent. Deterioration of the economic outlook led to an increase in impairment charges of the bank. The bank’s income decreased by £51 million in the first half of 2020.
- Carnival PLC (LON: CCL)
Luxury cruise ship operator, Carnival announced a dividend cut in order to strengthen its liquidity position. It is a world’s largest leisure travel company with the fleet of most luxury cruises in the world that includes Carnival Cruise Line, Princess Cruises, AIDA Cruises, Costa Cruises and Ruby Princess among others.
- Go-Ahead Group PLC (LON: GOG)
A market pioneer in the travel and leisure industry got hit hard amid the pandemic as tours, travel and any social gatherings have been strictly forbidden to halt the spread of the virus. In this scenario of financial setback, the company decided to suspend its proposed interim dividend of 30.17 pence per share in order to serve the current priority of prudent cash management.
- Brown Group Plc (LON: BWNG)
A diversified retailer announced on 23rd March 2020 that it would not be recommending a final dividend for the financial year 2021. During the first quarter of 2021, the company’s revenue was down by 22 per cent. The product sale of the company plummeted by 28.8 per cent during Q1 2021.
- ITV PLC (LON: ITV)
In the light of continued economic uncertainty, the media company has decided not to pay an interim dividend during the first half of 2020. The company though expects an improvement in advertising revenues as the productions are now restarting with the efforts of its commercial sales team.
Top companies around the world have deferred the dividend pay-outs in order to preserve liquidity, which would allow them to see through the uncertain times ahead. According to media reports, the world has underpinned its hope on global pharmaceutical giants for vaccine development. Once the vaccine is available, things could return towards normalcy. However, slashing or cancelling of dividends does not mean a company is fundamentally weak. It means that the company has taken a prudent approach, which is in the best interest of all its stakeholders.