Building up investor’s expectations may only mean knocking them down again. On Friday property group Land Securities, having reopened its retail properties, revealed plans to reinstate dividend payments in November. It is one of about half the FTSE 100 businesses that have either cancelled, reduced or suspended payouts this year. Even at these reduced levels — the lowest since 2012 — FTSE dividends are at risk of further declines.
It is little surprise that dividend payers more exposed to economic gyrations have cut harder. Consumer businesses and industrial groups feature heavily. Banks meanwhile have reduced payouts in response to government pressure. Total dividends for the FTSE 100 are now expected to be about £60bn this year, down from £90bn in January. Concentration heightens the risk — half of the remaining dividends are concentrated in just 10 stocks.
Energy and resources businesses account for a big chunk of what is left. The largest payout is expected to come from energy giant BP. Yet cracks are showing in its commitment to hand £6.7bn to investors this year, at a dividend yield of more than 10 per cent. A surprise cut by rival Shell adds to those doubts.
BP earnings, already below the expected payout, remain at risk to further economic deterioration and oil price declines. Miners BHP and Rio are less exposed but still reliant on a rally in iron ore prices and recovery in Chinese demand. BP hopes a second-half recovery will help it cover the payout. Others yet to cut look similarly optimistic. For FTSE 100 groups still planning to pay, dividend cover is just under 1.4 times, says AJ Bell. That is a payout ratio of 72 per cent.
UK banks were expected to contribute almost a tenth to total payouts before being frozen. As loan losses begin to climb, withholding payouts may become a greater necessity. A drawn out recovery looks inevitable. Futures imply dividends for all financials in 2022 will be 40 per cent below last year’s level, says Barclays. Income investors should keep their hard hats to hand.
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