Several of the world’s largest investors have urged companies to slash dividends and prioritise shoring up their balance sheets as the coronavirus pandemic wreaks havoc on businesses around the world.
Legal & General Investment Management, the UK’s largest asset manager with £1.2tn in assets under management, France’s BNP Paribas Asset Management and Fidelity International are among the big shareholders that told the Financial Times they think payouts should be postponed to help cushion the economic shock.
They are responding to plummeting revenues in a diverse range of sectors from airlines to cinema chain operators following the introduction of strict government isolation and distancing measures aimed at slowing the spread of Covid-19.
Sacha Sadan, director of investment stewardship at LGIM, said many companies were generating no revenues at all after being forced to close by governments.
“Companies should take all the measures they can [to protect their businesses]. I would rather they cut their dividends and stop share buybacks and support their employees instead,” he said. “This is a time to survive.”
Michael Herskovich, head of corporate governance at BNP Paribas Asset Management, said in the months ahead the French investment company would be taking a close look at companies’ dividend strategies “to make sure it does not jeopardise the long-term prospects of the company”.
“If you need to cut the dividend, just cut the dividend. If it is the right move because of the uncertainty of the situation and you want to secure your balance sheet and have a more cautious approach, that is understandable,” he said.
Companies from Marks and Spencer to Delta Air Lines have already cut their dividend in recent weeks amid rising pressure to conserve cash and fear of a backlash if they reward investors while seeking government help.
The situation is particularly acute in the banking sector, which is likely to face a wave of corporate defaults and emergency fundraising.
“The economic disruption will probably lead to a considerable increase in corporate debt burdens and defaults,” said Romain Boscher, chief investment officer for equities at Fidelity.
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Dividend deferral will “create an additional capital buffer for banks to absorb potential financial shocks” and “ensures they are well capitalised and able to help people and small businesses . . . we would advocate for European banks to act on this now”.
This week, Santander chairman Ana Botín became the first bank boss to move, pledging to consolidate its interim dividend with the full-year payout in May as it attempts to conserve cash ahead of a likely recession.
She also personally took a 50 per cent pay cut this year to back a €25m medical equipment fund the Spanish bank is creating.
Norway’s financial regulator has asked the government to ban banks and insurers from paying dividends until further notice, following a similar plea from the Swedish supervisors.
However, investors' generosity only goes so far. Fidelity’s Mr Boscher stressed “we are not advocating the cancellation of dividends . . . as soon as the situation stabilises, or the impact of any impaired loans improves, then dividends should be paid out.”
Additional reporting by Richard Milne in Oslo
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