Pandemic-induced dividend squeeze should prompt companies to show financiers they are still worth investment
Last week saw the Link Group release their most recent dividend monitor and it was not pretty reading. The data revealed that Q3 UK dividends fell sharply by 49% compared with the same period last year, compounding a poor Q2. At the risk of stating the blindingly obvious, companies have been continuing to economise amid this ever-present pandemic.
Picking winners and losers throughout the last six months has been challenging. Those brave enough to stay the course through intense market volatility have not only seen the price of their shares tumble, but now their income slashed as companies have been forced to conserve capital for the long dark winter ahead.
This has left UK companies with a problem: investors are looking elsewhere to make their money.
Despite Susan Ring, chief executive of corporate markets at Link Group, urging that “[The UK] is not out of the woods, but the trees are perhaps thinning a bit,” optimism is scarce among others. Quilters Portfolio managers have already announced they have started allocating funds elsewhere. They are eyeing up the US, Asia, infrastructure portfolios and alternative mandates as an alternative to the UK’s pitiful payouts. Star fund manager Nick Train even went so far as to say that investors have ‘given up’ on the UK.
Companies are therefore being left with a communications conundrum. How can they show the strength of their stock despite cutting investor payouts? With companies reluctant to reimburse investors, how do they secure much needed capital? Indeed, is there any opportunities left in the UK market at all?
Despite his opening comments in Citywire, Nick Train believes there is still life in the old dog yet. In a recent interview, he stated that the UK market now presents an opportunity to pick companies for growth rather than income, presenting a new and exciting prospect.
Why have investors ‘given up’ then? Bad headlines have naturally dominated the news over recent months, driven in part by more and more companies reporting losses and taking on huge levels of debt just to survive. However, as one door closes, another opens. With dividends looking unlikely to recover for the foreseeable future, one can change the goalposts of success.
Investors will not be expecting the same level of past payouts, so companies can sell them a different vision: the promise of growth. Ultimately, it is about changing the way you communicate your success, showing investors you are ready to come out of this crisis in good shape and are, to borrow one of Boris’s mantras, ‘building back better’.