In the words of Irving Berlin, “Everybody’s doing it, doing it, doing it!” I refer to the number of companies, large and small, deferring or cutting their dividends.
I understand that companies which are battling to survive and emerge with a viable, ongoing business on the other side of the pandemic have no choice but to default on their dividend. However, one cannot help feeling that others have taken advantage of the dividend desert to pass or reduce.
Take Shell, with an impeccable long dividend history. Analysts were convinced that in cash terms it could afford to maintain its dividend. Perhaps a dividend cut was inevitable given the price of oil and the economic outlook. But did it have to be by two-thirds?
I think it is common ground that dividends have probably risen too far in recent years at the expense of dividend cover, the ratio of net profits to dividends. This is always a balance between the needs of the business and the desires of investors.
What is likely post-Covid-19 is that dividends will be rebased and resume in most cases at lower levels. In the meantime, I would urge boards to be as frank and open as possible on future dividend policy and caveats.
Among large-cap financials such as Aviva, Legal & General, and M&G — all of which I hold — one is reassured by the positive approach and comments of the latter two, which are paying the dividends previously declared. Thousands of Aviva shareholders, however, have had absolutely no guidance as to whether, when or at what rate a dividend might be paid — just a commitment to consider the dividend situation in the final quarter.
Investors in this sector have had a torrid time over the past year as prices have plunged, but thankfully a modest recovery now seems under way. In these challenging times it is important not to lose one’s nerve and to maintain faith in businesses which are inherently sound but going through a particularly barren time.
In my portfolios, Christie Group and Vitec are prime examples. Under lockdown, Christie has seen very few transactions in its business broking division and very limited activity on the stocktaking side with so many pubs, restaurants and retailers closed.
Vitec, a video and photographic equipment company, has been hit by the cancellation of sporting events and the curtailment of media productions. However, I foresee a dramatic upsurge in activity for both companies later this year and beyond, assuming we clear the pandemic, with a commensurate recovery in share prices. Christie is already a significant holding, but with Vitec I happily added at a depressed 640p. Last year I was paying £11.50.
By contrast, there are always a few businesses which benefit from dark times. It’s an ill wind that blows no good, as the saying goes. In the early stages of Covid-19, Air Partner fell to 17p as all airline-associated stocks plunged. However, it has clearly had an excellent start to the year, with the company heavily involved in organising repatriation flights and facilitating the worldwide freight movement of PPE and industrial parts.
As a broking business with relatively stable overheads, increased activity quickly flows to the bottom line, boosting both profits and cash. Unsurprisingly AP shares have taken off and are now around 80p. Hopefully, there should be further to go — including, perhaps, a resumption of dividends.
Between the slumpers and the boomers I own a core number of small-cap favourites which have delivered excellent performances and increased dividends despite prevailing conditions. Anpario, Cerillion, Concurrent Technologies, FW Thorpe, Lokn’Store, and Treatt are all characterised either by strong cash positions or modest debt.
Occasionally I open a new position, as I recently did with Jarvis Securities, a retail stockbroker and provider of outsourced financial and administration services. I paid 433p with a 6 per cent dividend yield. A buoyant trading statement propelled it close to £6 before it fell back to 550p.
The lockdown has seen most companies experimenting with new ways of working and an associated ruthless focus on overheads and staffing levels. Thus, the pandemic legacy will surely be of leaner, more efficient businesses — yes, benefiting shareholders — but very sadly with the human and economic consequences of rising unemployment.
Finally, I welcome the partnership between Primary Bid and London Stock Exchange, which enables private investors to participate in company fundraisings usually only available to institutions. James Deal, Primary Bid chief operating officer, said: “This will provide a retail offering for individual shareholders from FTSE 100 companies to smaller listed ones in equal measure”. So far, PLCs such as Compass, IWG, and Tissue Regenerix have successfully participated — I am sure many others will follow.
Lord Lee of Trafford is an active private investor and author of “Yummi Yoghurt — A First Taste of Stock Market Investment”. He is a shareholder in all the companies indicated.
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