Although March was painful for most investors, income-seeking investors probably felt an additional level of pain. As UK interest rates fell to an all-time low of 0.1% and gilt yields plunged, a raft of UK companies cancelled their dividends in a move designed to shore up their balance sheets.
- UK banks agreed to cancel dividend payouts, buybacks and bonuses
- Dividend cancellations will affect stock market returns
- The FTSE 100 Index fell by 24.8% over Q1
To view the series of market updates through March, click here
Although March was painful for most investors, income-seeking investors probably felt an additional level of pain. As UK interest rates fell to an all-time low of 0.1% and gilt yields plunged, a raft of UK companies cancelled their dividends in a move designed to shore up their balance sheets. As well as affecting stock market returns, a sharp drop in dividend income will have a significant impact on investors who depend on the payments for their income.
“Having come under intense pressure, UK banks agreed to scrap dividend payouts”
The FTSE 100 Index fell by 13.8% during March and by 24.8% over the first three months of the year. Meanwhile, the FTSE 250 Index fell by 21.9% over the month and by 31% over the quarter. In March, the yield on the FTSE 100 Index increased from 5.01% to 5.78%%, while the FTSE 250 Index’s yield rose from 3.42% to 4.26%. In comparison, the yield on the benchmark UK gilt fell from 0.44% to 0.35%.
UK dividend payouts reached record levels during 2019, according to Link Asset Services’ Dividend Monitor, rising to £110.5 billion over the year. 2020, however, is set to look slightly different as some of the biggest payers have cancelled their dividends in the face of the unfolding coronavirus crisis.
Having come under intense pressure, UK banks agreed to scrap dividend payouts and share buybacks for the rest of 2019 through 2020. The move bolsters the banks’ scope to absorb financial shocks, and also boosts their ability to lend to companies and households. Banks will also refrain from paying cash bonuses to their senior executives. The most immediate impact to this decision was felt by Barclays' investors, who had been due to receive their full-year payout early in April. In a separate move, the Prudential Regulation Authority (PRA) urged insurance companies to think before making any moves to pay dividends or bonuses.
Marks & Spencer cancelled its final dividend and abandoned non-essential capital spending. High-street retailer Next said that it still aims to pay a dividend, but will defer its decision until June. InterContinental Hotels cancelled its dividend, while hotel and restaurant operator Whitbread cancelled its payout and cut all discretionary spending. Elsewhere, builders’ merchant chain Travis Perkins scrapped its dividend and paused the demerger of DIY chain Wickes. On a brighter note, investment trust Alliance Trust increased its dividend for a 53rd consecutive year.
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