Coal burns a hole in BHP’s dividend while Persimmon rebuilds its pay-out

•    31 FTSE 100 firms have cut their dividend for the first half of 2020
•    26 have maintained or increased their dividend
•    4 have restored a previously cut dividend payment
•    The biggest cutters and retainers are detailed below, along with the best and worst performing stocks

Russ Mould, investment director at AJ Bell, comments:

“A plunge in profits at its coal and petroleum divisions have prompted miner BHP to cut its second-half dividend by 30%, although income-seekers will take some comfort from house builder Persimmon’s return to the dividend list.

“As the first-half results season draws to a close, 31 FTSE 100 firms have cut, cancelled, suspended or deferred their dividend for the first half of calendar 2020 but 24 have kept or increased them and – perhaps most tellingly - six have restored them.

“This means the news flow is not quite as grim as it could have been, although the cuts have still cost investors £13.8 billion of precious income, while the retentions and restorations have come to £10.7 billion so far.

Source: Company accounts

“A further three firms did not declare an interim dividend. This is usually the case at Coca-Cola Hellenic Bottling and IAG (which has plenty more on its plate besides) while Just Eat Takeaway.com has yet to join the dividend list.

            
Source: Company accounts

“The gathering number of dividend retentions, with Persimmon the latest, at least offers some support to the narrative that we are through the worst in terms of the economic downturn and the cycle of earnings and dividend forecast downgrades.

“However, a second wave of the pandemic, or even a series of local lockdowns, should they prove necessary, could knock consumer and investor sentiment as the FTSE 100 looks to make progress from the 6,000 mark which seems to be anchored to right now, having traded round that level since late April.

“Investors clearly do not know what it going to happen next and they are acting accordingly.

“On one hand, Governments and central banks worldwide continue to offer stimulus and support to their economies; work continues to develop a COVID-19 vaccine; and companies are husbanding their cash resources carefully, with the result that some earnings statements and dividend payments are starting to surprise on the upside.

“On the other, those company cost-cuts will surely mean that unemployment could keep rising, or at least stay elevated, with possible knock-on effects upon consumer confidence; many economies have suffered the deepest quarterly downturns in their history; and no-one really knows how people will behave going forward and whether certain industries or activities – such as commuting, or office work or many leisure pursuits – could be affected (for the worse) for a long time to come.

“Since the FTSE 100 first regained the 6,000 level on 29 April, there has been incredibly wide dispersion in the performance of the index’s members – in theory a huge chance for active money managers to shine but in practice an enormous challenge.

“The best performers appear to have been firms 

•    Those firms whose business model was best-suited to helping or entertaining the UK’s population while it was under lockdown, such as Ocado and gambling services provider Flutter or support services play Bunzl, whose core business is the supply of vital (if often overlooked) equipment to the hygiene, health and grocery industries

•    Those firm that benefitted as consumers finally began to emerge again, such as Kingfisher

•    And miners such as Fresnillo, BHP and Antofagasta, as investors wondered whether dollops of fiscal and monetary stimulus at the same time would finally lead to some inflation and looked for exposure to ‘real’ assets such as commodities, just in case.

Source: Refinitiv data

“By contrast, the biggest losers since 29 April have generally been those whose revenues, profits and cash flows have been hardest hit by the pandemic and the lockdown – airlines and their suppliers – or those whose existing challenges have been made all the greater by the new environment. It is possible that the shift among consumers to watching streamed video content from relatively new providers leaves ITV with even more to ponder. Spring’s oil price collapse forced a dividend cut at Shell and an acceleration of its preparations for a carbon-neutral future. And more interest rate cut and quantitative easing (QE) poured further pressure on banks’ net interest margins, just as lenders also have to prepare for the risk of a spike in bad loans thanks to the recession.

“Dividend cuts at Imperial Brands, ITV, HSBC, Lloyds and Shell will not have helped their share prices either, with the last-named three all featuring in the list of the ten biggest dividend cutters in the first half of the year – a reminder to any investor who owns UK equities through an index-tracker or exchange-traded fund (ETF) that they must research and understand the key exposures of a benchmark industry when it comes to certain industries or specific countries.”