Johnson Matthey dividend cut another jolt for income seekers

Writer,

Johnson Matthey’s decision to cut its dividend – and in the process end a streak of increases that dates back to the late 1980s – means that 48 FTSE 100 firms have now announced some kind of reduction to or suspension of payments to shareholders, compared to 47 that have kept or increased them since the start of the year.

Five FTSE 100 firms – Ashtead, Auto Trader, DS Smith, Halma, National Grid - have yet to make a definitive statement on their intentions but pending their announcements, analysts believe total dividend payments from the FTSE 100 will drop by some 16% in 2020, on top of the estimated 11% drop in 2019.

That would take the FTSE 100’s total dividend payment down to £63 billion, the lowest figure since 2015.

Source: Company accounts, Sharecast, consensus analysts’ forecasts. 2020 and 2021 estimates adjust for FTSE reshuffle due to come into effect 22 June.

This can be seen two ways. Optimists will point to the resilience of dividend payments, as even a total drop of 25% from 2018 to 2020 – providing forecasts for this year prove accurate – could be an awful lot worse under the economic circumstances. Forty-seven ongoing or increased payments point to the resilience of some companies’ financial strength and business models - although some of those declared and paid out for the second half of 2019 before the viral outbreak took hold in the West, so their planned payments for the first and second halves of 2020 will be particularly interesting.

The more bearish view is that the forecasts for 2020 are simply too optimistic. A 16% dividend cut for 2020 does not seem much in the context of what the OECD forecasts will be the sharpest global economic downturn for a century. In addition, the fact that 48 cuts or deferrals against 47 decisions to hold or increase still translates into a 25%, two-year cut shows that the FTSE 100’s total dividend payment was reliant on a relatively low number of companies whose decisions had a disproportionate influence – the cuts from Shell, HSBC, Lloyds, BT and Imperial Tobacco and the deferral from Glencore had a particularly big impact on the overall forecasts.

Even now, the 10 biggest payers are expected to generate 54% of total dividends in 2020 and the top 20 some 73% of the forecast total. Any investor buying UK equities for their yield, either through individual stocks or a tracker fund, needs to make sure they are aware of this concentration risk and carry out detailed research on these 20 names in particular.

They also need to be aware that the forecast pay-out ratio of 69% is high and its mathematical obverse – earnings cover for the dividend – is lower than ideal at 1.44 times. The ideal is a pay-out ratio of 50% for earnings cover of 2.00 times. A longer-than-expected economic downturn could therefore place further pressure on dividend payments as profits and cash flows are squeezed further.

High pay-out ratios and low cover are particularly noticeable at the highest yielders, even if some allowances can be made for the relative stability of some firms’ business models or the solidity of their cash flows and balance sheets.

Ten Highest and Lowest yielding stocks in the FTSE 100, 2020E

  Dividend yield (%) Dividend cover (x) Pay-out ratio (%)
M & G 11.70% 2.09 x 48%
Aviva 10.80% 1.57 x 64%
BP 9.30% 0.07 x 1524%
Imperial Brands 9.00% 1.90 x 53%
Evraz 8.50% 1.08 x 93%
Standard Life Aberdeen 8.10% 0.64 x 156%
Legal and General 7.60% 1.68 x 60%
Phoenix Group 7.10% 1.48 x 68%
British American Tobacco 7.10% 1.53 x 65%
SSE 6.60% 1.09 x 92%
       
FTSE 100 3.70% 1.44 x 69%
       
Associated British Foods 0.80% 4.87 x 21%
Scottish Mortgage Inv. Trust 0.50% 0.59 x 169%
JD Sports Fashion 0.10% 13.99 x 7%
BT 0.00% n/a n/a
Compass 0.00% n/a n/a
Flutter Entertainment 0.00% n/a n/a
International Cons. Airlines 0.00% n/a n/a
Just Eat Takeaway.com 0.00% n/a n/a
Next 0.00% n/a n/a
Ocado 0.00% n/a n/a

Source: Sharecast, consensus analysts’ forecasts, Refinitiv data

The full list of FTSE 100 dividend cutters and keepers announced so far in 2020

  Dividend (pence) Last dividend event Comment
  2019E 2020E H2 2019 Special H1 2020
3i 35 37.88 Declared     H2 to be paid 17 July (unchanged)
Admiral Group 119.3 128.66 Paid Cancelled   Ordinary dividends for H2 2019 paid. Special dividend of 20.7p for H2 2019 cancelled
Anglo American 85.05 61.75 Cut     H2 dividend cut
Antofagasta  13.89 9.29 Cut     H2 2019 dividend cut
Ashtead 36.29 36.84 TBC     FY results on 16 June
Associated British Foods 46.35 15.44     Cancelled H1 2019-20 dividend cancelled
AstraZeneca 218.47 232.08 Paid     H2 dividend paid 30 March (unchanged)
Auto Trader 4.82 4.83 TBC     H2 2019-20 dividend under review; FY results due on 25 June
Avast 11.69 11.53 Declared     H2 to be paid 24 June (increased)
AVEVA 44.5 44.61 Declared     H2 to be paid 11 August (unchanged)
Aviva 9.5 31.08 Cancelled     H2 2019 dividend cancelled
BAE Systems 9.4 23.25 Cancelled     H2 2019 dividend cancelled
Barclays 3 2.61 Cancelled   Cancelled Q4 2019 and Q1 2020 dividend cancelled
Barratt Developments 46.4 18.71 Cancelled     H2 2019 dividend cancelled
Berkeley 142.09 241.06 Confirmed     Confirmed final, plus £140.1 million in dividends and buybacks confirmed by Sept'2020. Results on 19 June.
BHP Group 103.77 93.58 Paid     H1 2019-20 paid on 24 March
BP 31.99 32.09 Paid   Paid Q4 2019 and Q1 2020 unchanged dividends paid
British American Tobacco 210.4 219.69 Paid     Q4 2019 paid (increased) and no change planned to 2020 pay-out ratio
British Land  15.96 17.09 Cancelled     Q3 and Q4 2019 cancelled
BT 4.62 0 Cancelled   Cancelled H2 2019-20 and FY 2020-21 dividends cancelled
Bunzl 15.5 41.95 Cancelled     H2 2019 dividend cancelled
Burberry  11.3 26.21 Cancelled   Cancelled H2 2019-20 and H1 2020-21 dividends cancelled
Coca-Cola HBC 54.16 47.27 Declared     H2 to be paid 28 July
Compass 40 0     Cancelled H2 2019 paid 24 February (increased). FY 2020 cancelled.
CRH 72.5 75.71 Paid     H2 2019 paid 28 April
Croda 90 94.71 Paid     H2 2019 paid 28 May (increased)
DCC 145.27 146.43 Declared     H2 2019 to paid 23 July (increased)
Diageo 68.6 68.99 Paid     H1 2019-20 paid on 9 April (increased)
Evraz 58.52 25.77 Paid     H2 2020 paid on 27 March (unchanged)
Experian 36.67 40.59 Declared     H2 to be paid on 24 July (unchanged)
Ferguson 162.45 111.75     Cancelled H1 2019-20 cancelled
Flutter Entertainment 200 0     Cancelled H2 2019 paid in scrip, FY 2020 cancelled
Fresnillo  11.7 11.79 Cut     H2 2019 paid 2 June (cut)
GlaxoSmithKline 80 80 Paid   Declared Q4 2019 paid on 9 April (unchanged). Q1 2020 to be paid on 9 July (unchanged).
Glencore  0 7.5     Deferred Decision on planned $0.20 payment deferred until Q3
GVC 17.6 19.07 Cancelled     H2 2019 payment cancelled
Halma 16.71 17.75 TBC     FY results on 14 July
Hargreaves Lansdown 42 44 Paid     H1 2019-20 dividend paid 9 March (increased)
Hikma Pharmaceutical 34.33 36.91 Paid     H2 2019 dividend paid 7 May (increased)
Homeserve 23.6 24.47 Declared     H2 2019-20 to be paid 3 August (increased)
HSBC 23.41 12.04 Cancelled   Cancelled Q4 2019 and Q1 2020 dividend cancelled
Imperial Brands 206.6 137.7 Cut     H1 2019-20 payment cut. To be paid
Informa 7.55 9.25 Cancelled     H2 2019 cancelled
InterContinental Hotels 32 31.12 Cancelled     H2 2019 cancelled
Intermediate Capital Group 50.8 53.52 Declared     H2 2019-20 to be paid 5 August (increased)
International Cons. Airlines 11.7 0 Cancelled     H2 2019 dividend cancelled
Intertek 105.8 91.65 Paid     H2 2019 dividend paid 11 June (increased)
ITV 2.6 2.83 Cancelled     H2 2019 dividend cancelled
JD Sports Fashion 0.28 0.83 Cancelled     H2 2019 dividend cancelled
Johnson Matthey  55.63 62.78 Cut     H2 2019 dividend halved; to be paid on 4 August
Just Eat Takeaway.com 0 0 Zero     None declared or expected
Kingfisher  3.33 4.23 Cancelled     H2 2019 dividend cancelled
Land Securities 23.2 28.83 Cancelled     Q3 and Q4 2019 cancelled
Legal and General 17.57 18.06 Paid     H2 2019 dividend paid 4 June (increased)
Lloyds  1.12 1.05 Cancelled   Cancelled Q4 2019 and Q1 2020 dividend cancelled
London Stock Exchange 70 75.15 Paid     H2 2019 dividend paid 27 May (increased)
M & G 11.92 18.6 Paid Paid   Debut H2 and special both paid 29 May
Melrose Industries 1.7 1.32 Cancelled     H2 2019 dividend cancelled
Mondi 23.83 56.99 Cancelled     H2 2019 dividend cancelled
Morrison (Wm) 6.77 7.36 Declared Deferred   H2 2019-20 dividend to be paid 29 June (increased). Decision on special dividend deferred
National Grid 48.72 49.96 TBC     FY results on 18 June
Next 167.5 0     Cancelled FY 2020-21 dividends cancelled
Ocado 0 0 Zero     None declared or expected
Pearson 19.5 18.02 Paid     H2 2019 dividend paid 7 May (increased)
Pennon 43.77 45.69 Declared     H2 2019-20 to be paid 2 September (increased)
Persimmon 0 110 Cancelled Cancelled   Final and special dividend both cancelled for 2019
Phoenix Group 46.8 47.4 Paid     H2 dividend paid 19 May (unchanged)
Polymetal 48.4 83.1 Paid     H2 dividend paid 29 May (increased)
Prudential 36.09 33.9 Paid     H2 dividend paid 15 May (lower owing to change in corporate structure)
Reckitt Benckiser 174.6 176.11 Paid     H2 dividend paid 28 May (increased)
RELX 45.7 45.7 Paid     H2 dividend paid 28 May (increased)
Rentokil Initial 1.51 3.74 Cancelled     H2 2019 dividend cancelled
Rightmove 2.8 4.67 Cancelled     H2 2019 dividend cancelled
Rio Tinto 298.05 252.83 Paid Paid   Special dividends paid 3 July and 8 August 2019. H2 dividend paid 16 April.
Rolls Royce 4.6 3.67 Cancelled     H2 2019 dividend cancelled
Royal Bank of Scotland 2 1.5 Cancelled Cancelled Cancelled Q4 2019, special and Q1 2020 dividend cancelled
Royal Dutch Shell 146.69 50.1     Cut Q4 2019 paid unchanged. Q1 2020 cut and to be paid 22 June
RSA Insurance  7.5 25.19 Cancelled     H2 2019 dividend cancelled
Sage 16.91 16.53 Paid   Paid H1 2019-20 dividend paid 12 June (increased)
Sainsbury 3.3 10.37 Cancelled     H2 2019-20 dividend cancelled
Schroders 114 114 Paid     H2 2019 dividend paid 7 May (unchanged)
Scottish Mortgage Inv. Trust 3.25 3.38 Declared     H2 2019-20 dividend to be paid 1 July (increased)
SEGRO 20.7 22.48 Paid     H2 2019 dividend paid 1 May (increased)
Severn Trent 100.08 101.76 Declared     H2 2019-20 dividend to be paid 17 July (increased)
Smith & Nephew 29.65 32.4 Paid     H2 2019 dividend paid 6 May (increased)
Smith DS 13.24 14.88 TBC     FY results on 4 July
Smiths Group 45.9 26.29     Cancelled H1 2019-20 dividend cancelled
Smurfit Kappa 24.37 95.31 Cancelled     H2 2019 dividend cancelled
Spirax-Sarco Engineering 110 116.54 Paid     H2 2019 dividend paid 22 May (increased)
SSE 78.24 82.19 Confirmed     Confirmed FY payment of 80p for 2019-20. Results on 17 June
Standard Chartered 5.68 14.49 Cancelled   Cancelled Q4 2019 and Q1 2020 dividend cancelled
Standard Life Aberdeen 21.6 21.6 Paid     H2 2019 dividend paid 19 May (unchanged)
St. James's Place 40.49 40.49 Cut     H2 2019 dividend paid 27 May (cut)
Taylor Wimpey 3.84 7.15 Cancelled Cancelled   Special and H2 2019 dividends cancelled
Tesco 9.15 8.37 Declared     H2 2019-20 dividend to be paid 3 July (increased)
Unilever 142.76 150.83 Paid   Paid Q1 2020 dividend paid 4 June (increased)
United Utilities 42.6 43.23 Declared     H2 2019-20 dividend to be paid 3 August (increased)
Vodafone 7.86 8.02 Declared     H2 2019-20 dividend to be paid 7 August (unchanged)
Whitbread 32.65 45.28 Cancelled     H2 2019 dividend cancelled
WPP 22.7 29.47 Cancelled     H2 2019 dividend cancelled
             
Total (£ billion) 74.8 63.0        
Growth % (11.2%) (15.8%)        
Growth in £ (9,481) (11,832)        

Source: Company accounts. 48 FTSE firms have cut, suspended, deferred or cancelled payments, 47 have retained or increased them, five have yet to comment and two (Just Eat Takeaway and Ocado) do not pay dividends. The total is 102 because both Admiral and Morrison paid ordinary dividends but deferred or cancelled special dividends so they both feature twice.

For a list of all UK-listed companies which have cut, suspended, or deferred dividend payments, take a look at our Dividend tracker.

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


russmould's picture
Written by:
Russ Mould

Russ Mould has 28 years' experience of the capital markets. He started at Scottish Equitable in 1991 as a fund manager and in 1993 he joined SG Warburg, now part of UBS investment bank, where he worked as equity analyst covering the technology sector for 12 years. Russ joined Shares in November 2005 as technology correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media by AJ Bell Group, he was appointed AJ Bell’s Investment Director in summer 2013.