Research reveals 445 companies listed on London Stock Exchange (LSE) have cancelled/cut/suspended dividend payments this year. This is not good for investors who will now perhaps have to look elsewhere for income.

Fund manager GraniteShares has revealed that between January 1st and July 24th, 2020, a staggering 445 companies listed on LSE cancelled, cut, or suspended dividend payments.

Will Rhind, founder and CEO at GraniteShares said: “Last year, dividends paid by British companies hit an all-time high or £110 billion – an increase of 10.7% on 2018.  The payment of dividends and reinvesting them provides a huge boost to returns over time.  Indeed, £1,000 invested in an ISA at the end of 1999 would have delivered growth of £204 by November 2017, but by reinvesting all dividends and with the benefits of compounding, you would have seen a return of £1,193.

“Given the current economic crisis and the likely rise in job losses, it will be some time before we see a return to the level of dividends paid before the Coronavirus crisis started.  We therefore expect to see a rise in sophisticated investors and professional investors making greater use of shorting and leveraged investment strategies to boost returns. At the same time, those companies that are able to maintain or increase dividends, like Rio Tinto, are likely to be well-backed by income-seeking investors.”

How do investors feel?

Sarah Coles, personal finance analyst at Hargreaves Lansdown believes income investors are “suffering death by a thousand cuts”, but it doesn’t necessary mean you should sell.

She says: “You need to get to grips with the specific circumstances around the dividend cut and weigh up the prospects of the business. In some cases, the cut has been precautionary, and businesses have been more resilient than expected. In financial services, where we saw a swathe of cuts, they were either ordered or advised to do so by the regulator. In some cases, including some general insurers, it’s not always a true reflection of the impact the crisis has had on the business. Some of those companies that cut or suspended their interim dividend may well pay a full year dividend.

“If you’re a new income investor, there are still good dividends out there. It’s essential to look at each one on a stock by stock basis to evaluate the circumstances of the business, but the kinds of sectors delivering reliable dividends are traditionally defensive stocks including things like utilities, pharmaceuticals, tobacco and life insurers.”

Will these companies reinstate these dividends at a later date?

CJ Cowan, assistant portfolio manager on the Quilter Monthly Income portfolio believes that some dividends will be reinstated once the economy improves: “The headlines declaring the end of dividends are premature at this stage. Not all suspensions have been due to an inability to pay, with many suspensions coming from companies in healthy financial positions. This suggests that in some cases we should see a return once the economic outlook stabilises.

“Indeed, we are now seeing some glimmers of hope as some firms reinstate their payments. Investors should be prepared for is lower pay-out ratios from UK companies though. This crisis has changed the way we work and live, and we should expect some change in the dividend culture of the UK as a result. It is vital that diversification of your income stream is achieved in order to successfully navigate the changing environment.”

Further reading

Market shock: how did investors react to the impact of Covid-19

Are banks becoming less cyclical?

Bank dividend bans: 3 market implications