Investors face worst payouts for generation

INVESTORS face a £40bn dividend black hole this year in the worst hit to payouts ‘in generations’ because of the coronavirus crisis.

Companies will hand back £60.5bn to shareholders in 2020, according to financial administration firm Link Group.

This is down a whopping 39pc from £98.5bn last year, as firms in virtually all industries slash costs to survive the pandemic.

Dividends have been among the first cuts made to slow spending – but this has hit ordinary investors who rely on the payouts as a source of income.

During the second quarter, between April and June, companies halved the amount they pledged to give shareholders to £16bn, down from £32bn last year.

This included a hit from Royal Dutch Shell, which has trimmed its dividend by two-thirds, reasoning that it isn’t sensible to give money back that it might need to fund by taking on more debt. BP yesterday followed suit, the latest heavyhitter to take the axe to its divi.

Around 50pc of the second-quarter cuts came the finance sector.

The Bank of England ordered all banks to cancel payouts for 2020 and urged insurance companies to do the same – though Legal & General and Admiral pushed back, with Admiral only cancelling a one-off dividend. In total, around 60pc of companies on the FTSE 100 index and some 80pc on the FTSE 250 cut or cancelled divis.

Susan Ring, chief executive of corporate markets at Link Group, said: ‘The second quarter was truly a record breaker. 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.’

She said companies resetting their books, and the legacy of the pandemic, meant it could take until 2026 for dividends to return to their 2019 level.