Dividend cuts: these 3 FTSE companies just cancelled their payouts

Investing for dividends is difficult in this market. These FTSE companies just announced dividend cuts.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Dividends are a powerful force in investing, especially during bear markets.

Investing for dividends, however, is not as easy as it sounds. When economic conditions deteriorate, companies sometimes cut their dividends, leaving their investors with no income stream. With that in mind, here’s a look at three FTSE companies that have been forced to cut their payouts recently.  

ITV

Only a few weeks ago, broadcaster ITV (LSE: ITV) said it would be paying a full-year dividend of 8p per share for 2019. And it was planning to pay another dividend of 8p per share for 2020.

Yesterday, however, the company said in order to conserve cash in the wake of the coronavirus disruption, it would no longer be paying its final 2019 dividend of 5.4p per share. And it withdrew its intention to pay that 8p full-year dividend for 2020. This dividend cut is disappointing for ITV shareholders, myself included, who held the stock for its big payout.

In hindsight though, there were a number of warning signs here. For starters, the company cut its dividend in the Financial Crisis. Secondly, dividend growth had dried up recently. No growth is often a precursor to a cut.

Overall, the main lesson here, in my view, is that cyclical shares aren’t ideal dividend stocks. Earnings fluctuations mean they can’t always afford to pay a dividend.

Marks & Spencer

Another FTSE company that has announced a dividend cut in the last week is Marks & Spencer (LSE: MKS). On Friday, it warned that it would be “severely impacted” by the coronavirus and that in the current circumstances, the board did not anticipate making a final dividend payment for this financial year. Analysts had been expecting a final dividend of 6.9p per share.

This is not the first time MKS has cut its dividend recently. In May, the group cut its final 2019 payout by 40%. And then in November, it cut its interim dividend by 40% too. These cuts came after the group held its dividend flat for two years.

A key takeaway here is that it pays to be careful with companies that have recently cut their dividends. If a company has cut the payout once, it may have no hesitation in doing so again.

InterContinental Hotels

Finally, InterContinental Hotels (LSE: IHG) has also been forced to cut its dividend. It said on Friday that, in an effort to protect the long-term health of the business, it was withdrawing the recommendation of a final dividend of 85.9¢ per share announced in mid-February. And it will defer consideration of further dividends until visibility has improved. Management added that the group is “conservatively leveraged”. But it said the dividend cut was necessary to ensure that it comes out of the coronavirus crisis as strong as it possibly can.

Of the three companies I’ve mentioned, this cut was the least predictable. Yes, the hotel industry is cyclical. But IHG has an asset-light business model (meaning more flexibility) and a strong balance sheet. It also has an excellent dividend growth track record and has had a high level of dividend coverage in recent years.

Ultimately, this cut really is due to the ‘black swan’ nature of the coronavirus. The lesson for dividend investors? Portfolio diversification is always crucial.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in ITV. The Motley Fool UK has recommended InterContinental Hotels Group and ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »