Johnson Matthey dividend cut another jolt for income seekers

Russ Mould

11 June 2020

•   FTSE 100 dividend payments for 2019 trading year set to drop by £9.5 billion or 11%
•   Dividends forecast to fall by a further £11.8 billion or 16% in 2020
•   Forecast dividends of £63 billion for 2020 would be lowest since 2015

The tables at the end of this release show:

• The FTSE 100 stocks forecast to have the highest and lowest yields in 2020
• The full list of FTSE 100 dividend cutters and keepers announced so far in 2020

Russ Mould, investment director at AJ Bell, comments:

“Johnson Matthey’s decision to cut its dividend – and in the process end a streak of increases that dates back to the late 1980s – means that 48 FTSE 100 firms have now announced some kind of reduction to or suspension of payments to shareholders, compared to 47 that have kept or increased them since the start of the year.

“Five FTSE 100 firms – Ashtead, Auto Trader, DS Smith, Halma, National Grid - have yet to make a definitive statement on their intentions but pending their announcements, analysts believe total dividend payments from the FTSE 100 will drop by some 16% in 2020, on top of the estimated 11% drop in 2019.

“That would take the FTSE 100’s total dividend payment down to £63 billion, the lowest figure since 2015.

Source: Company accounts, Sharecast, consensus analysts’ forecasts. 2020 and 2021 estimates adjust for FTSE reshuffle due to come into effect 22 June.

“This can be seen two ways. Optimists will point to the resilience of dividend payments, as even a total drop of 25% from 2018 to 2020 – providing forecasts for this year prove accurate – could be an awful lot worse under the economic circumstances. Forty-seven ongoing or increased payments point to the resilience of some companies’ financial strength and business models - although some of those declared and paid out for the second half of 2019 before the viral outbreak took hold in the West, so their planned payments for the first and second halves of 2020 will be particularly interesting.

“The more bearish view is that the forecasts for 2020 are simply too optimistic. A 16% dividend cut for 2020 does not seem much in the context of what the OECD forecasts will be the sharpest global economic downturn for a century. In addition, the fact that 48 cuts or deferrals against 47 decisions to hold or increase still translates into a 25%, two-year cut shows that the FTSE 100’s total dividend payment was reliant on a relatively low number of companies whose decisions had a disproportionate influence – the cuts from Shell, HSBC, Lloyds, BT and Imperial Tobacco and the deferral from Glencore had a particularly big impact on the overall forecasts.

“Even now, the 10 biggest payers are expected to generate 54% of total dividends in 2020 and the top 20 some 73% of the forecast total. Any investor buying UK equities for their yield, either through individual stocks or a tracker fund, needs to make sure they are aware of this concentration risk and carry out detailed research on these 20 names in particular.

“They also need to be aware that the forecast pay-out ratio of 69% is high and its mathematical obverse – earnings cover for the dividend – is lower than ideal at 1.44 times. The ideal is a pay-out ratio of 50% for earnings cover of 2.00 times. A longer-than-expected economic downturn could therefore place further pressure on dividend payments as profits and cash flows are squeezed further.

“High pay-out ratios and low cover are particularly noticeable at the highest yielders, even if some allowances can be made for the relative stability of some firms’ business models or the solidity of their cash flows and balance sheets.”

Tables:

Ten Highest and Lowest yielding stocks in the FTSE 100, 2020E

	Dividend yield (%)	Dividend cover (x)	Pay-out ratio (%)
M & G	11.7%	2.09 x	48%
Aviva	10.8%	1.57 x	64%
BP	9.3%	0.07 x	1524%
Imperial Brands	9.0%	1.90 x	53%
Evraz	8.5%	1.08 x	93%
Standard Life Aberdeen	8.1%	0.64 x	156%
Legal and General	7.6%	1.68 x	60%
Phoenix Group	7.1%	1.48 x	68%
British American Tobacco	7.1%	1.53 x	65%
SSE	6.6%	1.09 x	92%

FTSE 100	3.7%	1.44 x	69%

Associated British Foods	0.8%	4.87 x	21%
Scottish Mortgage Inv. Trust	0.5%	0.59 x	169%
JD Sports Fashion	0.1%	13.99 x	7%
BT	0.0%	n/a	n/a
Compass	0.0%	n/a	n/a
Flutter Entertainment	0.0%	n/a	n/a
International Cons. Airlines	0.0%	n/a	n/a
Just Eat Takeaway.com	0.0%	n/a	n/a
Next	0.0%	n/a	n/a
Ocado	0.0%	n/a	n/a

Source: Sharecast, consensus analysts’ forecasts, Refinitiv data

The full list of FTSE 100 dividend cutters and keepers announced so far in 2020

	Dividend (pence)		Last dividend event
	2019E	2020E	H2 2019	Special	H1 2020	Comment
3i	35.00	37.88	Declared			H2 to be paid 17 July (unchanged)
Admiral Group	119.30	128.66	Paid	Cancelled		Ordinary dividends for H2 2019 paid. Special dividend of 20.7p for H2 2019 cancelled
Anglo American	85.05	61.75	Cut			H2 dividend cut
Antofagasta	13.89	9.29	Cut			H2 2019 dividend cut
Ashtead	36.29	36.84	TBC			FY results on 16 June
Associated British Foods	46.35	15.44			Cancelled	H1 2019-20 dividend cancelled
AstraZeneca	218.47	232.08	Paid			H2 dividend paid 30 March (unchanged)
Auto Trader	4.82	4.83	TBC			H2 2019-20 dividend under review; FY results due on 25 June
Avast	11.69	11.53	Declared			H2 to be paid 24 June (increased)
AVEVA	44.50	44.61	Declared			H2 to be paid 11 August (unchanged)
Aviva	9.50	31.08	Cancelled			H2 2019 dividend cancelled
BAE Systems	9.40	23.25	Cancelled			H2 2019 dividend cancelled
Barclays	3.00	2.61	Cancelled		Cancelled	Q4 2019 and Q1 2020 dividend cancelled
Barratt Developments	46.40	18.71	Cancelled			H2 2019 dividend cancelled
Berkeley	142.09	241.06	Confirmed			Confirmed final, plus £140.1 million in dividends and buybacks confirmed by Sept'2020. Results on 19 June.
BHP Group	103.77	93.58	Paid			H1 2019-20 paid on 24 March
BP	31.99	32.09	Paid		Paid	Q4 2019 and Q1 2020 unchanged dividends paid
British American Tobacco	210.40	219.69	Paid			Q4 2019 paid (increased) and no change planned to 2020 pay-out ratio
British Land	15.96	17.09	Cancelled			Q3 and Q4 2019 cancelled
BT	4.62	0.00	Cancelled		Cancelled	H2 2019-20 and FY 2020-21 dividends cancelled
Bunzl	15.50	41.95	Cancelled			H2 2019 dividend cancelled
Burberry	11.30	26.21	Cancelled		Cancelled	H2 2019-20 and H1 2020-21 dividends cancelled
Coca-Cola HBC	54.16	47.27	Declared			H2 to be paid 28 July
Compass	40.00	0.00			Cancelled	H2 2019 paid 24 February (increased). FY 2020 cancelled.
CRH	72.50	75.71	Paid			H2 2019 paid 28 April
Croda	90.00	94.71	Paid			H2 2019 paid 28 May (increased)
DCC	145.27	146.43	Declared			H2 2019 to paid 23 July (increased)
Diageo	68.60	68.99	Paid			H1 2019-20 paid on 9 April (increased)
Evraz	58.52	25.77	Paid			H2 2020 paid on 27 March (unchanged)
Experian	36.67	40.59	Declared			H2 to be paid on 24 July (unchanged)
Ferguson	162.45	111.75			Cancelled	H1 2019-20 cancelled
Flutter Entertainment	200.00	0.00			Cancelled	H2 2019 paid in scrip, FY 2020 cancelled
Fresnillo	11.70	11.79	Cut			H2 2019 paid 2 June (cut)
GlaxoSmithKline	80.00	80.00	Paid		Declared	Q4 2019 paid on 9 April (unchanged). Q1 2020 to be paid on 9 July (unchanged).
Glencore	0.00	7.50			Deferred	Decision on planned $0.20 payment deferred until Q3
GVC	17.60	19.07	Cancelled			H2 2019 payment cancelled
Halma	16.71	17.75	TBC			FY results on 14 July
Hargreaves Lansdown	42.00	44.00	Paid			H1 2019-20 dividend paid 9 March (increased)
Hikma Pharmaceutical	34.33	36.91	Paid			H2 2019 dividend paid 7 May (increased)
Homeserve	23.60	24.47	Declared			H2 2019-20 to be paid 3 August (increased)
HSBC	23.41	12.04	Cancelled		Cancelled	Q4 2019 and Q1 2020 dividend cancelled
Imperial Brands	206.60	137.70	Cut			H1 2019-20 payment cut. To be paid
Informa	7.55	9.25	Cancelled			H2 2019 cancelled
InterContinental Hotels	32.00	31.12	Cancelled			H2 2019 cancelled
Intermediate Capital Group	50.80	53.52	Declared			H2 2019-20 to be paid 5 August (increased)
International Cons. Airlines	11.70	0.00	Cancelled			H2 2019 dividend cancelled
Intertek	105.80	91.65	Paid			H2 2019 dividend paid 11 June (increased)
ITV	2.60	2.83	Cancelled			H2 2019 dividend cancelled
JD Sports Fashion	0.28	0.83	Cancelled			H2 2019 dividend cancelled
Johnson Matthey	55.63	62.78	Cut			H2 2019 dividend halved; to be paid on 4 August
Just Eat Takeaway.com	0.00	0.00	Zero			None declared or expected
Kingfisher	3.33	4.23	Cancelled			H2 2019 dividend cancelled
Land Securities	23.20	28.83	Cancelled			Q3 and Q4 2019 cancelled
Legal and General	17.57	18.06	Paid			H2 2019 dividend paid 4 June (increased)
Lloyds	1.12	1.05	Cancelled		Cancelled	Q4 2019 and Q1 2020 dividend cancelled
London Stock Exchange	70.00	75.15	Paid			H2 2019 dividend paid 27 May (increased)
M & G	11.92	18.60	Paid	Paid		Debut H2 and special both paid 29 May
Melrose Industries	1.70	1.32	Cancelled			H2 2019 dividend cancelled
Mondi	23.83	56.99	Cancelled			H2 2019 dividend cancelled
Morrison (Wm)	6.77	7.36	Declared	Deferred		H2 2019-20 dividend to be paid 29 June (increased). Decision on special dividend deferred
National Grid	48.72	49.96	TBC			FY results on 18 June
Next	167.50	0.00			Cancelled	FY 2020-21 dividends cancelled
Ocado	0.00	0.00	Zero			None declared or expected
Pearson	19.50	18.02	Paid			H2 2019 dividend paid 7 May (increased)
Pennon	43.77	45.69	Declared			H2 2019-20 to be paid 2 September (increased)
Persimmon	0.0	110.0	Cancelled	Cancelled		Final and special dividend both cancelled for 2019
Phoenix Group	46.8	47.4	Paid			H2 dividend paid 19 May (unchanged)
Polymetal	48.4	83.1	Paid			H2 dividend paid 29 May (increased)
Prudential	36.09	33.90	Paid			H2 dividend paid 15 May (lower owing to change in corporate structure)
Reckitt Benckiser	174.60	176.11	Paid			H2 dividend paid 28 May (increased)
RELX	45.70	45.70	Paid			H2 dividend paid 28 May (increased)
Rentokil Initial	1.51	3.74	Cancelled			H2 2019 dividend cancelled
Rightmove	2.80	4.67	Cancelled			H2 2019 dividend cancelled
Rio Tinto	298.05	252.83	Paid	Paid		Special dividends paid 3 July and 8 August 2019. H2 dividend paid 16 April.
Rolls Royce	4.60	3.67	Cancelled			H2 2019 dividend cancelled
Royal Bank of Scotland	2.00	1.50	Cancelled	Cancelled	Cancelled	Q4 2019, special and Q1 2020 dividend cancelled
Royal Dutch Shell	146.69	50.10			Cut	Q4 2019 paid unchanged. Q1 2020 cut and to be paid 22 June
RSA Insurance	7.50	25.19	Cancelled			H2 2019 dividend cancelled
Sage	16.91	16.53	Paid		Paid	H1 2019-20 dividend paid 12 June (increased)
Sainsbury	3.30	10.37	Cancelled			H2 2019-20 dividend cancelled
Schroders	114.00	114.00	Paid			H2 2019 dividend paid 7 May (unchanged)
Scottish Mortgage Inv. Trust	3.25	3.38	Declared			H2 2019-20 dividend to be paid 1 July (increased)
SEGRO	20.70	22.48	Paid			H2 2019 dividend paid 1 May (increased)
Severn Trent	100.08	101.76	Declared			H2 2019-20 dividend to be paid 17 July (increased)
Smith & Nephew	29.65	32.40	Paid			H2 2019 dividend paid 6 May (increased)
Smith DS	13.24	14.88	TBC			FY results on 4 July
Smiths Group	45.90	26.29			Cancelled	H1 2019-20 dividend cancelled
Smurfit Kappa	24.37	95.31	Cancelled			H2 2019 dividend cancelled
Spirax-Sarco Engineering	110.00	116.54	Paid			H2 2019 dividend paid 22 May (increased)
SSE	78.24	82.19	Confirmed			Confirmed FY payment of 80p for 2019-20. Results on 17 June
Standard Chartered	5.68	14.49	Cancelled		Cancelled	Q4 2019 and Q1 2020 dividend cancelled
Standard Life Aberdeen	21.60	21.60	Paid			H2 2019 dividend paid 19 May (unchanged)
St. James's Place	40.49	40.49	Cut			H2 2019 dividend paid 27 May (cut)
Taylor Wimpey	3.84	7.15	Cancelled	Cancelled		Special and H2 2019 dividends cancelled
Tesco	9.15	8.37	Declared			H2 2019-20 dividend to be paid 3 July (increased)
Unilever	142.76	150.83	Paid		Paid	Q1 2020 dividend paid 4 June (increased)
United Utilities	42.60	43.23	Declared			H2 2019-20 dividend to be paid 3 August (increased)
Vodafone	7.86	8.02	Declared			H2 2019-20 dividend to be paid 7 August (unchanged)
Whitbread	32.65	45.28	Cancelled			H2 2019 dividend cancelled
WPP	22.70	29.47	Cancelled			H2 2019 dividend cancelled

TOTAL (£ billion)	74.8	63.0
Growth %	(11.2%)	(15.8%)
Growth in £	(9,481)	(11,832)

Source: Company accounts. 48 FTSE firms have cut, suspended, deferred or cancelled payments, 47 have retained or increased them, five have yet to comment and two (Just Eat Takeaway and Ocado) do not pay dividends. The total is 102 because both Admiral and Morrison paid ordinary dividends but deferred or cancelled special dividends so they both feature twice.

Russ Mould

Investment Director

Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993, he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

Contact details

Mobile: 07710 356 331
Email: russ.mould@ajbell.co.uk