Investors nervously waiting for news on whether their once reliable income stocks will come through with dividend announcements despite the Covid-19-induced financial turmoil have a big week ahead. So far a third of the FTSE 100 companies have already announced they a suspending, deferring or entirely cutting dividend payments. But this week four of the biggest dividend payers will release their quarterly results, including dividend commitments.
BP and Shell are two of the four and the oil majors traditionally account for almost 20% of all dividends paid out by the FTSE 100. Pharmaceuticals giants GlaxoSmithKline and Astra Zeneca will also tell investors what to expect. On a first reading, the pharma companies should have little to worry about as a result of the Covid-19 pandemic lockdown but the expected hit to the economy as a whole over coming months means companies are under pressure to preserve cash.
Shell and BP dividends are particularly important to income investors and fund performance. In 2019 the pair’s combined dividend represented a whole 24% of the £75 billion FTSE 100 companies have agreed to pay out to investors from 2019 profits. Their usually high contribution to payouts has risen due to cancellations and suspensions elsewhere. Despite the fact that oil prices have crashed to their lowest levels in over 20 years, many analysts still expect the oil giants to pay out.
AJ Bell analyst Russ Mould commented:
“The oil majors are fundamental to the case for the overall UK market, especially from an income point of view, so investors will want to know whether those payments can be relied on.”
Both companies have made reassuring noises through statements issued over the past weeks but they are under more pressure than ever after last week’s historic oil price plunge. At one point the price of future contracts for May delivery of the US oil benchmark WTI fell into negative territory as storage space ran out. Buyers could be paid up to $39 a barrel just to take it off suppliers’ hands.
But Mould expects both companies to retain their dividend payments for now, even if Shell’s is forecast to see a slight cut. The number of stocks paying out dividends has anyway decreased in recent years and this year just 20 FTSE 100 companies are now expected to pay dividends. The expected total has dropped £54 billion from £63 billion.
Banks and insurers, usually major contributors to the FTSE 100’s dividends total, have stopped dividends under pressure from the Bank of England’s Prudential Regulation Authority. The regulator wants to ensure cash is funnelled towards loans for businesses hit by the Covid-19 pandemic, rather than investors, and that banks have an additional cash buffer to cope with the expected rise in bad loans over coming months.
Panmure Gordon’s Simon French said investors will see the coming week as indicative of the future dividend plans of some of the London Stock Exchange’s biggest companies:
“It’s a big week, not so much in what happens in a quantitative way, but what happens in a qualitative way.”
Big banks have halted their dividends after the Bank of England intervened. HSBC — traditionally one of the biggest payers — will publish results on Tuesday that will be scrutinised for the impact of Covid-19, especially given its exposure to Asia.