Imperial Brands cuts dividend by a third and Compass taps shareholders for £2bn

Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

“The FTSE 100 was firmly above 6,000 on Tuesday as a combination of lockdown easing, vaccine progress and central bank support helped give equities a big boost,” says Russ Mould, Investment Director at AJ Bell.

“The index built on its substantial gains yesterday, repeated in markets worldwide, when early results from a vaccine trial carried out by US firm Moderna lit a path to a potential route out of the pandemic.

“It was no surprise to see airline stocks among the top performers in London given a successful vaccine would transform their very gloomy prospects at present.

Antofagasta and Imperial Brands were among the losers as they delivered dividend disappointment, along with Compass as it announced plans for a £2bn fundraise.

“Oil prices ticked up further with the Brent crude benchmark above $35 per barrel, while sterling bounced a little against the dollar to $1.2257.”

Imperial Brands

“Cigarette maker Imperial Brands is one of the last high yielding FTSE 100 companies to finally cave in and slash its dividend, in its case to reduce debt pressures. Prior to the news it was trading on a prospective yield of 11.5% which seemed too good to be true. Having slashed the payment by a third, investors can now expect an 8.7% yield after adjusting for today’s share price movement.

“Investors across the UK have been dealt a massive blow this year with widespread cuts to company dividends. Those reliant on income from their investments, such as people in retirement, will be forced to cut their own spending if dividends are drying up. Otherwise they will have to dip into their savings if planning to maintain historical levels of expenditure.

“Imperial Brands was a popular stock among retail investors because the shares were cheap and the dividends were generous. However, it was less popular among income funds with only 21 funds and investment trusts having it as a top 10 holding.

“Fund managers may have been put off by the business disappointing with earnings in recent years as a result of tighter regulation hurting its efforts to sell vaping products.

“The business has also lost favour with many investors who now prefer more ethical investments. The idea of owning shares in a company whose products create significant health problems and are addictive is unthinkable for a lot of people.”

Compass

“Catering giant Compass served up a bit of a sour dish for shareholders as it announced plans for a £2bn fundraise.

“Although lockdown conditions are being eased in several countries, many of its food service operations in schools and offices remain shuttered and this is causing the business real pain, though April trading represented a modest improvement on the March showing.

“The business could probably have withstood a fair while longer in the pressure cooker of the coronavirus crisis without going cap in hand to shareholders.

“However the fundraise should reinforce its credentials as a survivor in its market and one with the capacity to invest for recovery and to take advantage of M&A opportunities as and when they arise.

“And it is refreshing to see retail investors offered the opportunity to participate, even if the nature of the placing means existing shareholders aren’t being given first refusal on the new shares.

“Compass is already at the top of the food chain and its smaller rivals don’t have the luxury of tapping the capital markets for billions in fresh liquidity.

“One longer-term challenge for the business is the trend towards working from home. If this becomes more established in the ‘new normal’ then the size its customer base could shrink appreciably.”

These articles are for information purposes only and are not a personal recommendation or advice.