UK companies have cut or deferred £30bn in dividend payments to shore up their balance sheets to weather the financial impact of the coronavirus crisis.
On Tuesday, the cigarette maker Imperial Brands cut its dividend for the first time since listing 24 years ago, as did the copper miner Antofagasta, adding to an ever-lengthening list of FTSE 100 companies opting to hold on to cash.
Almost half (46) of the UK’s biggest listed firms have now either reduced, deferred, suspended or cancelled cash returns to shareholders, according to research by AJ Bell.
“Dividend cuts and deferrals have now topped £30bn leaving income investors with a large hole in their portfolios,” said Laura Suter, a personal finance analyst at AJ Bell.
Quick GuideWill there be a second wave of coronavirus?
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In recent days the UK has seen a sudden sharp increase in Covid-19 infection numbers, leading to fears that a second wave of cases is beginning.
Epidemics of infectious diseases behave in different ways but the 1918 influenza pandemic that killed more than 50 million people is regarded as a key example of a pandemic that occurred in multiple waves, with the latter more severe than the first. It has been replicated – albeit more mildly – in subsequent flu pandemics. Until now that had been what was expected from Covid-19.
How and why multiple-wave outbreaks occur, and how subsequent waves of infection can be prevented, has become a staple of epidemiological modelling studies and pandemic preparation, which have looked at everything from social behaviour and health policy to vaccination and the buildup of community immunity, also known as herd immunity.
Is there evidence of coronavirus coming back in a second wave?
This is being watched very carefully. Without a vaccine, and with no widespread immunity to the new disease, one alarm is being sounded by the experience of Singapore, which has seen a sudden resurgence in infections despite being lauded for its early handling of the outbreak.
Although Singapore instituted a strong contact tracing system for its general population, the disease re-emerged in cramped dormitory accommodation used by thousands of foreign workers with inadequate hygiene facilities and shared canteens.
Singapore’s experience, although very specific, has demonstrated the ability of the disease to come back strongly in places where people are in close proximity and its ability to exploit any weakness in public health regimes set up to counter it.
In June 2020, Beijing suffered from a new cluster of coronavirus cases which caused authorities to re-implement restrictions that China had previously been able to lift. In the UK, the city of Leicester was unable to come out of lockdown because of the development of a new spike of coronavirus cases. Clusters also emerged in Melbourne, requiring a re-imposition of lockdown conditions.
What are experts worried about?
Conventional wisdom among scientists suggests second waves of resistant infections occur after the capacity for treatment and isolation becomes exhausted. In this case the concern is that the social and political consensus supporting lockdowns is being overtaken by public frustration and the urgent need to reopen economies.
However Linda Bauld, professor of public health at the University of Edinburgh, says “‘Second wave’ isn’t a term that we would use at the current time, as the virus hasn’t gone away, it’s in our population, it has spread to 188 countries so far, and what we are seeing now is essentially localised spikes or a localised return of a large number of cases.”
The overall threat declines when susceptibility of the population to the disease falls below a certain threshold or when widespread vaccination becomes available.
In general terms the ratio of susceptible and immune individuals in a population at the end of one wave determines the potential magnitude of a subsequent wave. The worry is that with a vaccine still many months away, and the real rate of infection only being guessed at, populations worldwide remain highly vulnerable to both resurgence and subsequent waves.
“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 from using its loan scheme from paying out dividends to investors.”
Most of the biggest payers have announced their dividend policies for this year, or part of it, with National Grid one of the few left to do so.
Last month, Royal Dutch Shell, the FTSE 100’s biggest payer last year, made the first cut to its dividend since 1945, slashing its first quarter payout by two-thirds after citing a “crisis of uncertainty” as the price of oil collapsed.
In March, Britain’s largest banks agreed to scrap nearly £8bn worth of dividends in light of the coronavirus crisis. Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered coordinated announcements that they would halt payouts for 2019 and through 2020 after discussions with the Bank of England.
According to AJ Bell, the UK-listed companies that have made the biggest cuts, suspensions or deferrals include HSBC at £5bn and BT at £3.3bn, which hopes to maintain investment in rolling out full-fibre broadband nationwide. They are followed by Glencore at £2.1bn and Shell at £1.97bn, Lloyds at £1.57bn, Barclays at £1.03bn and Royal Bank of Scotland at £967m.
AJ Bell found that a fifth of investors that have been hit by dividend cuts say their investment income has fallen by 50% or more.
Despite the widespread reductions to dividend payouts, AJ Bell said its research showed that 140 companies have committed to maintaining dividends.
Some of these, such as Tesco, have proved controversial. The grocer was forced to defend the decision to pay a £635m dividend, while at the same time accepting a similar-sized tax break through the business rates holiday that forms part the government’s emergency coronavirus support package.
AJ Bell said £12.3bn in dividends had so far been maintained, including from 26 FTSE 100 firms.
The companies maintaining the biggest dividend payouts to investors so far are BP, despite plunging to a first-quarter loss of £505m, at £1.7bn. Vodafone at £1bn, GlaxoSmithKline at £953m, Legal & General at £754m, Diageo at £702m, Tesco at £636m and SSE at £582m.