Ferguson, the plumbing specialist, knows how to keep the taps running and investors hot. It said on Tuesday it would restore dividend payments and its shares rose 6 per cent. Hunting Properties, a lettings titch, said it wanted to reinstate its dividend and its shares rose 20 per cent. That is a measure of investors’ thirst for income.
Ferguson is the 41st UK company this year to talk about reinstating its payout, says AJ Bell brokers. It is welcome news amid the gloom. So far this calendar year, UK groups have announced they will cut dividends for 2019 and 2020 by £42bn. Of that, FTSE 100 companies are chopping shareholders’ incomes by £32.8bn.
The size of cuts in the UK outguns rival bourses, says Jefferies. The drop in dividends is greater than the drop in earnings and far worse than during the global financial crisis.
However, since June, the cuts have been exceeded by the amount of dividends that companies plan to maintain or restore, says AJ Bell hopefully. FTSE 100 stocks are expected to yield about 3.5 per cent this year. The yield rises to about 4.2 per cent in 2021, or about twice as much available in the US (a market to which Ferguson plans to decamp). Four per cent is still a long way behind the dividend highs of 2019 and it assumes banks — which alongside miners and oil groups account for the bulk of UK dividends — resume payouts. That is less likely if UK interest rates fall below zero. Panmure Gordon thinks promises by Aviva will come to nothing, too. The insurer yields 10 per cent and its dividend cover is worryingly thin.
But even if banks do not reinstate payouts, AJ Bell forecasts the FTSE 100 will yield about 3.7 per cent next year. Compare that with five-year gilts yielding minus 0.08 per cent and plus 0.22 per cent yield on 10-year gilts. National Savings and Investments has just decimated a market-beating rate on deposits from 1 per cent to 0.15 per cent.
Clearly, further economic despondency will drag share prices down, particularly in the UK which is overexposed to old-economy stocks and commodity prices and underexposed to technology. But if UK government efforts to stimulate the economy work, income-bearing equities have to be just a bit more alluring than bonds where holders are paying issuers to house their savings.
Help, send beer. These are dark times for students stuck self-isolating in student digs in Glasgow, Exeter and Manchester Met, as the sign in the window of one Glasgow hall shows. Universities were expecting a bumper year for admissions. The question is now whether students show up, and if they stay once they get there. Fifty quid food vouchers and one month rent discounts only go so far.
The uncertainty should weigh on student accommodation providers, who have developed lucrative business models based on steady income streams and high occupancy rates. Unite Group, by far the biggest of the listed lot, had 98 per cent occupancy last year, and more than half of its beds in effect underwritten by universities. Another London-focused outfit, GCP, collected 92 per cent of budgeted revenues for the year to June despite cancellations of in-person teaching during lockdown.
Those kinds of numbers will not be maintained. Unite said last month it was targeting 90 per cent occupancy this academic year, a drop that would cost it between 10 and 20 per cent in rental income. GCP and Empiric, a third provider, will have a harder time still. Despite trumpeting their Covid-safe studio credentials, both are more exposed to international students paying premium prices and have lower guaranteed income. GCP put its reservation rate at 68 per cent earlier this month; in August Empiric said bookings were running 20 per cent behind the same time last year.
That was before the on-campus outbreaks started. They will increase pressure on universities — and the government — to move online-only for all but the essentials. Student signs will clamour for rent refunds, not beer. Unite has already set a precedent by returning money to students who left after their summer term was cut short, a move other landlords followed. They will find it difficult to resist doing so again. That will hurt cash, even if lenders may look kindly on covenant breaches.
Yet still Unite trades at a premium to net asset value, unlike GCP and Empiric priced at 20 to 40 per cent below. Investors assume the turmoil this year will have no lasting impact. Student numbers should rise further thanks to demographics, and there is a shortage of suitable housing. That relies on the experiment in online learning proving unpopular, though. What investors are really counting on is the enduring attraction of shared experiences in student halls — and bonding through beer.
Get alerts on Ferguson PLC when a new story is published