£52bn of dividends at risk as UK firms protect cash

Up to £52 billion of UK company dividends could be scrapped in 2020 as London-listed firms cancel payouts to protect cash and avoid criticism amid the coronavirus crisis, according to the latest dividend monitor from Link Group.

The report’s worst case scenario says UK dividends could fall 51% to £48 billion in 2020.

Link’s best case scenarion is that dividends fall 27% to £71.9 billion.

The report said 45% of UK companies have already scrapped payouts to shareholders.

“Within a few days from the middle of March, UK companies scrapped payouts to shareholders worth a staggering £25.4bn between now and the end of December this year,” said the report.

“This represents one third of the dividends Link had expected (before the crisis struck) UK plc to pay over the rest of this year. 

“By April 5th, 45% of Britain’s listed companies had already axed their payouts or are certain to do so, an unprecedented figure.

“Link flags a further £23.9bn it judges to be at risk for this year, equivalent to 29% of 2020’s April-December payouts. 

“The rest, just £31.1bn, Link judges to be safe.”

Kit Atkinson, head of capital markets for corporate markets EMEA at Link Group, said: “Even as we face the deepest recession since the second world war, investors can take comfort from the knowledge that tens of billions of pounds of dividends will still be paid this year …

“Dividends really matter – not only do they provide income for pensioners and many other types of investor, but they also underpin share price valuations.

“Some of the cancellations for this year are very necessary to protect companies – investors have responded well on the whole. 

“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 banks are in a separate group. 

“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.

“We have no crystal ball but newsflow is sure to get worse before it gets better. 

“The exceptional uncertainty explains why stock markets have fallen so far, so fast. 

“Stock markets always try to get ahead of events and they are already pricing in a lot of bad news. 

“If the damage to the economy truly can be limited by government action and if the economy can escape the prospect of a protracted depression, it’s clear markets can recover sooner and further. 

“If the news turns out to be worse, they could decline further.”