The coronavirus pandemic triggered unprecedented cuts in dividends from UK companies in the second quarter of this year, with payouts down 57.2%, and 50.2% if special dividends are excluded.
Thirty companies cut dividends and 176 cancelled their dividends completely, together making up three quarters of all the UK companies that usually pay in the second quarter, according to new research from financial administrators Link Group.
Included in that batch was Royal Dutch Shell, which cut its dividend by two-thirds, the first reduction it had made since the Second World War.
In the aftermath of the global financial crisis, the worst quarter – Q1 2009 – saw two-fifths of companies cut their dividends, and one-fifth cancelling them altogether, said Link Group.
Sixty-one companies increased their payouts. In total Q2 dividends fell to £16.1bn (€17.5bn), almost £22bn less than the second quarter of 2019 on a headline basis.
Excluding special dividends, which were exceptionally high this time last year, the decline is from £32.1bn to £16bn.
According to Link this was the lowest second-quarter total since 2010, and the decline by far the biggest ever recorded.
“The second quarter was truly a record breaker,” said Susan Ring, chief executive officer, corporate markets at Link Group. “Not by a whisker, nor by a nose, but by a mile. The whole of 2020 will, without doubt, see the biggest hit to dividends in generations.”
Margot von Aesch, partner and lead on income research at research and execution firm Redburn, said Link Group’s analysis “illustrates clearly that the shareholder return destruction caused by the pandemic has been of historic proportions, leaving only a handful of companies untouched”.
Of the £16.4bn of cuts in underlying dividends in the second quarter, half of the impact came from the financial sector after the Bank of England instructed banks to cancel all shareholder payouts for 2020 and leaned heavily on insurance companies to follow suit, with most bowing to the pressure.
Link Group’s best-case scenario for 2020 is for dividends to fall 39% to £60.5bn on an underlying basis, down from £98.5bn. Its worst case scenario sees a fall of 43% to £56.3bn on an underlying basis.
Commentators have observed that companies cutting dividends did so to protect balance sheets, with Ben Lofthouse, fund manager of Henderson International Income Trust, saying that the decline in dividends looked set to be similar to or worse than the decline in profits.
“Notably, UK profits lagged behind the rest of the world, given the heavy weighting of oil companies on the UK market,” he said. “Naturally nobody wants to see their dividends get cut, but if it’s in the interests of protecting a company in such unusual times then it’s the right thing to do, allowing them to emerge stronger.”
The UK pensions regulator reacted to the COVID-19-triggered economic shutdown by telling trustees that any reduction or suspension of deficit repair contributions would need to be accompanied by suspension of dividends and other forms of shareholder return.
Last month it said around 10% of defined benefit schemes had sought to defer deficit contributions, with discussions ongoing for others.