Dividend cuts by UK companies this year exceed £30 billion

Laura Suter
19 May 2020

•    Dividend cuts or deferrals by UK companies hit £30bn today – full list available on request
•    New research suggests half of retail investors have been hit by dividend cuts
•    One in five of those investors have seen their investment income cut by 50% or more 
•    The FTSE 100 stocks that are maintaining dividends

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“Dividend cuts and deferrals have now topped £30bn leaving income investors with a large hole in their portfolios. While some investors might be hoping the end is in sight for these cuts, they could actually increase now the Government has brought in stricter measures banning firms using its loan scheme from paying out dividends to investors. 

“Half of investors* questioned by AJ Bell say that dividend cuts have hit their portfolios and reduced the income they’re getting. On average investors say they’ve seen their income cut by 27%, which means that someone who is reliant on their income to fund their retirement has effectively taken a 27% pay cut. But some have been hit far harder, with 40% seeing dividend cuts of 30% or more and one in five investors saying they’ve seen their investment income cut by 50% or more. 

“Those who rely on their investments to fund their lifestyle will now be faced with a really difficult choice, of selling some units of their investments to make up the shortfall – potentially at a loss considering current market conditions – or face a cut to their income, meaning they need to cut their outgoings.

“What’s more, 12% of investors say they don’t know if their investment income has been hit, suggesting they may be fund investors who have yet to see what impact the cull of dividends will have on their holdings. Some income fund managers have predicted income cuts of 40% or more, while others are more optimistic. Either way, some investors are in for a shock when the next payout from their funds arrives.

“With income hard to find at the moment, investment trusts with an income focus could shine compared to their fund rivals. Trusts are able to withhold up to 15% of their income from previous years to supplement payouts in leaner years and many have built up decent reserves they will be able to dip into for the current year. Already some trust boards have committed to maintaining the current dividend – if not grow it – this year, meaning these investors will be shielded from the dividend cuts for the current year.
“Stock investors can commit more of their cash to those companies who have pledged to keep paying out dividends in the current year, in order to help shield from some of the income fall. So far 140 companies have committed to maintaining £12.3bn in dividends – including 26 FTSE 100 firms. The likes of BP, Sage, Vodafone, GlaxoSmithKline, Diageo and Tesco have all committed to their payouts in the coming year, meaning income investors still have options.”

* AJ Bell Youinvest survey of 2,310 customers between 01/05/20 - 06/05/20

Full income survey results

Have dividend cuts reduced your investing income?

%

Yes

49%

No

39%

Don't know

12%

 

 

 

If yes, approximately how much dividend income have you lost?

%

10%

13%

20%

15%

30%

13%

40%

8%

50%

7%

More than 50%

14%

Not sure

29%

Source: AJ Bell Youinvest survey of 1,124 customers between 01/05/20 - 06/05/20

 

FTSE 100 firms maintaining dividends

Company

Dividend maintained (£ million)

BP

              1,715.9

Vodafone

              1,056.8

GlaxoSmithKline

                 953.2

Legal & General

                 754.0

Diageo

                 702.2

Tesco

                 636.6

SSE

                 582.0

Prudential

                 543.7

Anglo American

                 518.7

CRH

                 437.5

Unilever

                 424.3

3i

                 340.6

Standard Life Aberdeen

                 326.4

CCH

                 208.7

London Stock Exchange Group

                 175.4

Admiral

                 165.5

Smith & Nephew

                 163.2

SEGRO

                 157.9

Hargreaves Lansdown

                 148.0

Berkeley Group

                 124.9

Pearson

                 101.6

DCC

                   94.3

Hikma Pharmaceuticals

                   72.7

Croda

                   65.1

Sage

                   64.7

Spirax-Sarco Engineering

                   57.4

Source: Company accounts

Laura Suter
Head of Personal Finance

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.

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