Coronavirus – dodging the dividend strike

Coronavirus – The much-publicised move by the big banks to cancel their dividends due to Coronavirus has left investors with mixed emotions and many questions. 

Like the rest of Britain, savers were shocked by their apparent disinclination to act in the interest of the economy until they were strong-armed by the Bank of England.

But the loss of this income will still come as a blow, as the banks were set to distribute about £7.5billion. 

Other companies have also opted to retain this cash. This means shareholders have been deprived of many billions of pounds in payouts, with more cuts to come as insurers line up to join the dividend strike.

By contrast, investment trusts which are closed-ended (with a limited number of shares) have more room for manoeuvre because they don’t have to sell down their portfolio if savers want their money back – instead, investors just offload their holding in the trust itself.

Despite this flexibility, some investment trust investors may be contemplating flight.

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Advisers and analysts suggest this would be a short-sighted course of action, whether you have funds or investment trusts.

The rates on deposit accounts have become even leaner. Cashing in investments will deprive you of potential future growth – and income, since the dividend strike will not be permanent.

Some companies may not survive the looming downturn, but those that emerge should resume payments. 

However, as Jason Hollands of Bestinvest warns, some companies may ‘reset’ their dividend policy. Businesses that can adapt and thrive may pay less to their bosses – and to their shareholders.

In light of this, Hollands suggests funds such as Threadneedle UK Equity Income and TB Evenlode Income that aim for a total return, based on capital growth and dividends as a better bet than traditional dividend seeking. 

He comments: ‘Some funds specify that they will only invest in shares whose yields are higher than the market overall. They may find themselves cornered in a shrinking universe of eligible holdings.’

James Carthew of Quoted Data, the investment research business, says that this may be the moment to be grateful for the flexibility of investment trusts. 

Source – https://www.dailymail.co.uk/money