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£28bn of UK dividends cancelled due to coronavirus

BERLIN, GERMANY - FEBRUARY 04: Symbolic photo: GBP banknotes are counted on February 04, 2020 in Berlin, Germany. (Photo by Thomas Trutschel/Photothek via Getty Images)
British banknotes. (Thomas Trutschel/Photothek via Getty Images)

Almost half of UK-listed companies have cancelled their dividends this year, according to new research, as companies look to conserve cash to ride out the coronavirus pandemic.

Fund administrator Link Group said on Thursday that £28.2bn-worth ($35bn) of dividends have been cancelled since the start of the year. 45% of UK-listed companies have axed payouts to investors, with the vast majority of cancellations coming in the last four weeks.

By value, the axed dividends amount to 34.5% of the expected payout between April and December 2020.

The wave of cancellations come as companies look to conserve cash in the face of slumping consumer demand and plummeting economic growth due to the COVID-19 pandemic.

“Some of the cancellations for this year are very necessary to protect companies – investors have responded well on the whole,” said Kit Atkinson, head of capital markets for corporate markets EMEA at Link Group.

“For many, public relations are playing a role. Any company taking public money in one of the support schemes, either via government-backed loans or via taxpayer-funded salaries for furloughed workers would naturally face a public outcry if it continued payouts to shareholders.”

The findings come a day after most of the UK’s biggest insurance companies bowed to pressure from regulators and cancelled dividends.

Read more: Insurers axe dividends after Bank of England pressure

UK banks last week made a similar move under pressure from the Bank of England. Banks account for the lion’s share of cancelled dividends, with lenders due to pay investors £13.6bn in windfalls this year.

“The banks are in a separate group,” Atkinson said. “They are very well cushioned by strong balance sheets and could afford to pay dividends. But political influence has been brought to bear, and the banks have demurred for now.”

The London headquarters of HSBC and Barclays banks, at Canary Wharf in east London. Many banks are moving assets from London to other EU cities in the face of uncertainty over Brexit. Picture date: Monday December 3, 2018. Photo credit should read: Matt Crossick/ EMPICS Entertainment.
Banks including HSBC and Barclays were pressed into cutting their dividends. (Matt Crossick/EMPICS Entertainment/Getty Images)

A further £23.9bn of dividends are “at risk”, according to Link, which presented its findings in its quarterly UK Dividend Monitor report.

Legal & General (LGEN.L) faces growing pressure to fall in line with other UK insurers and cancel its dividend, for example.

“We have no crystal ball but news flow is sure to get worse before it gets better,” Atkinson. “The exceptional uncertainty explains why stock markets have fallen so far, so fast.”

Read more: Banks forced to axe dividends and may cut bonuses over COVID-19 crisis

However, £31.1bn of dividends are “likely to be safe”, Link said. Energy giants Shell (RDSB.L) and BP (BP.L) have recently moved to bolster their finances without mentioning dividend cuts, reassuring investors that payouts are still on the horizon.

“Investors can take comfort from the knowledge that tens of billions of pounds of dividends will still be paid this year,” Atkinson said. “More importantly, they will bounce back next year, even under quite bearish scenarios.”

Others like Margot von Aesch, partner and lead on income research at Redburn, aren’t so sure.

“In the UK, many companies pay out a very large proportion of their profits in dividends,” von Aesch said. “For some, including the very largest payers in the UK, this proportion is unsustainably large, even without the current crisis to contend with.

“We should expect some of them to reset their dividend policies permanently as result, meaning dividends could take a rather long time to recover fully to previous highs.”