Friday 27 March 2020 12:43 pm  |  Updated:  Friday 27 March 2020 12:44 pm

Coronavirus dividend cuts produce £4.4bn hit to investor portfolios

By: Angharad Carrick

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With more UK firms announcing coronavirus-fuelled dividend cuts this week, the total loss of investor income so far this year is now £4.4bn.

The pace of dividend cuts is accelerating as coronavirus wreaks havoc on world economies. In March 116 companies have suspended their dividends totalling £4.2bn, according to investment fund AJ Bell. That compares to three in February and only two in January.

It represents a big blow to savers and portfolio builders as interest rates on cash have hit historic lows.

Domino’s Pizza announced a dividend cut this morning of £25.7m, despite increased demand in the face of the coronavirus pandemic.

Britain’s biggest pizza delivery firm said “the volatility of delivery sales” and “an uncertain outlook” had required “a cautious and prudent approach”.

Shares in Domino’s are up 5.17 per cent and Russ Mould, investment director at AJ Bell, said investors may be relieved over some dividend cuts. He pointed to Kingfisher, which is trading up despite a dividend cut of £158m.

The B&Q owner revealed the cut earlier this week but said it is keeping its stores in the UK open despite temporarily shutting shops in France and Spain. It is also bolstering its online home delivery and click and collect capacity.

“If a dividend cut is part of the near-term price that must be paid to ensure a firm’s long-term survival or avoid a major rights issue or debt-for-equity swap, then investors may well come to accept it, even if the loss of the precious payments is a big blow,” Mould said.

Halfords also suspended its dividend this week after forecasting a 25 per cent drop in sales amid the pandemic.

The retailer said it anticipates a sharp drop in sales, of around £300m, following the government’s tightening of restrictions

Richard Hunter, Interactive Investor’s head of markets said: “A score of companies who have already reduced, deferred or cancelled their dividends is ample proof that in terms of financial prudence, the lack of a dividend payment in the short term (not applicable to those already announced as above) is already becoming an entrenched feature of UK PLC.”

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Further coronavirus dividend cuts to come

Analysts warned the number of coronavirus dividend cuts will only increase as the impact of the Covid-19 outbreak worsens in the UK.

Giles Coghlan, currency analyst at forex trader HYCM, told City A.M.: “We can expect a further flurry of dividend cuts, downward earnings revisions and closures in the entertainment and hospitality sectors.”

Helal Miah, investment research analyst at The Share Centre, predicted some big names announcing dividend cuts over the next few months. Those could include BP, Shell and some of the big banks.

“Even before the price collapse in oil, BP and Shell were relatively stretched and paying out fairly hefty dividends compared to earnings,” Miah said. Earlier today, Shell announced it is cutting back on capital expenditure and halting its share buyback programme.

“Given the Financial Conduct Authority (FCA) announcement [to suspend results for two weeks] we won’t be getting full-year results but what may happen is some companies announcing dividend cuts separately,” Miah said.

The financial watchdog said: “The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly.”

Coronavirus dividend cuts so far:

Source: AJ Bell

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