Companies scrapping dividends

[Simpo Two]

Apols if this has been posted before, but someone told me that the Govt has told companies not to pay dividends as they're getting so much help from the state.

I found some confirmation of this at https://www.theguardian.com/business/2020/mar/19/u... but I wondered how many firms will do it and what effect it might have on investments. And is it UK-only or likely to be global?

[Eric Mc]

No law against it but if a company feels it needs government help then is it really right to give away some of that money to shareholders?

[Condi]

The whole risk/reward metric is fked at the moment.

Companies have spent billions of pounds buying back shares and paying dividends while relying on cheap debt rather than cash reserves to run the business day to day. There is nothing wrong with that, but the shareholders should take the risk of the business going bust rather than expecting the government to bail them out when something unexpected happens.

The whole market has become too big to fail, and its wrong.

[Deesee]

Imagine if this filters down to SME/Ltd's that are furloughing staff/taking on COVID loans...

[anonymous-user]

Simpo Two said:

someone told me that the Govt has told companies not to pay dividends

There has been a "conversation" between governments and banks on this point. You'll find it if you Google.

It looks as though insurance companies may also have been spoken to.

[Benbay001]

As said. Just banks.

Although, that said, of the 5 dividend paying companies i own, only 1 is going ahead with their dividend.

The Works, IAG, RHIM and Somero have all scrapped the dividend.

Do i have a problem with that?

No.

A dividend is just cash that would otherwise be on the balance sheet.

Id rather not have a dividend payment and the company survives, than a dividend payment which stresses the companies finances.

I guess this would be different if you relied upon the dividend for your income.

[Eric Mc]

Benbay001 said:

As said. Just banks.

Although, that said, of the 5 dividend paying companies i own, only 1 is going ahead with their dividend.

The Works, IAG, RHIM and Somero have all scrapped the dividend.

Do i have a problem with that?

No.

A dividend is just cash that would otherwise be on the balance sheet.

But not necessarily in the form of cash.

[Benbay001]

Eric Mc said:

But not necessarily in the form of cash.

I didnt really know how else to word it.
A £100m dividend paid out, is £100m less equity on the balance sheet

[Eric Mc]

Benbay001 said:

Eric Mc said:

But not necessarily in the form of cash.

I didnt really know how else to word it.
A £100m dividend paid out, is £100m less equity on the balance sheet

Agreed. They may have decided not to pay out the £100 million to the shareholders and use it to invest in some assets for use in the company. So it changes its nature from being a cash asset to maybe a machinery or equipment asset, a building asset or even stock for resale.

[lampchair]

Simpo Two said:

Apols if this has been posted before, but someone told me that the Govt has told companies not to pay dividend

I think it was the FCA from memory, they asked nicely and then through deeper discussions reminded one of the firms (that I know of) that regulatory action could follow if they didn’t play ball.

Simpo Two said:

as they're getting so much help from the state.

For banks it’s really to help with the balance sheet.

ETA: they also asked to suspend any type of buy back I think

[Simpo Two]

Thanks all for the replies. So just the banks then?

My main interest is RDS which does provide useful dividend income. Haven't heard anything from regarding the matter.

[Mezger]

Given almost all of these Banks and Insurance companies who have decided not to pay are on the FTSE 100, how will that impact the dividend yield for trackers like VUKE?

[2 GKC]

It’ll hammer them in the short term.