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Friday Email: 06 January 2017

Every Friday morning our lead analyst Mark Riding sends out his weekly run-down and upcoming events in the investor calendar, like this one:

The past week saw the FTSE 100 hit new highs on Thursday before dropping back to just below 7200. The main news of the week came from Next who signalled another tough year ahead and the shares quickly fell to below £40. However, they did clarify share holder returns with four special dividends of 45p over the next 12 months as well as the ordinary dividend payment which we expect to be flat at158p for a total of 338p. This offers a yield of over 8% which is good in anybody's book. The week ahead remains very quiet.

DividendMax 2016 Roundup

2016 was a momentous year, which started very badly with the FTSE 100 index dropping from 6242 at the start of the year and falling to 5537 by February 11th as the markets contemplated the uncertainty surrounding the EU referendum vote.  Markets then rose as it became apparent from opinion polls that the Bremain vote was ahead.

The day came as a shock to many and the markets plunged over 1000 points in pre market trading as the result became crystal clear at about 4am. The pound plunged and it began to dawn upon investors that the FTSE 100 was stuffed full of multinational companies who made most of their earnings overseas. In addition, many of these companies declared their dividends in dollars giving an immediate 20% windfall to their shareholders’ dividends.

This realisation gained traction and by the end of the year the FTSE 100 was trading at an all time high. In addition to this the bank of England stood (and still stands) ready to deliver massive QE if necessary ensuring that bond rates and interest rates will remain at historic low levels for many years to come.

All of this is fantastic for the dividend investor in a year when many commentators were telling us that it would be a disastrous year for dividends.

A look at the DividendMax database of over 600 companies (which covers over 99% of UK dividends by value) tells you that this was not the case.

Out of 620 companies, 420 increased their dividend in the 2016 fiscal year. A further 132 kept their dividend at the previous years level. So 89% of companies increased or maintained their dividend.

The numbers are in the table below:

Increased

Maintained

Reduced

Cut to zero

Takeover Cut

420

132

50

8

10

We looked at the number of full dividend cuts and thought 18 seemed modest, but closer inspection revealed that of the 18, only 8 were real cuts, the most serious being Anglo American. Most were in fact due to takeover notably SABMiller, Rexam, Friends life, Infinis and Catlin.

So only just over 1% actually cut their dividend in a ‘bad year for dividends’

8% reduced their dividend.

A breakdown of the numbers is shown in the table below:

Percentage change in the dividend

Companies

Up over 50%

48

Up 30% to 49.99%

24

Up 20% to 29.99%

26

Up 10% to 19.99%

106

Up 5% to 9.99%

100

Up 0.47% to 4.99%

116

Maintained

132

Reduced by 1% to 20%

15

Reduced by 21% to 40%

17

Reduced by 41% to 80%

18

Genuine cut to zero

8

Taken over

10

 

 

 

 

 

 

 

 

 

 

So why were commentators saying it was a disastrous year for dividends?

We have mentioned that FTSE 100 company Anglo American completely cut their dividend, but there were big names amongst those that reduced which may have made people think that the situation was far worse than it actually was. Big reductions came from more FTSE 100 or recent FTSE 100 companies including BHP Billiton, Barclays, Vedanta, Glencore, Rio Tinto, Amec Foster Wheeler, Rolls Royce with minor reductions from Severn Trent, Easyjet and Sainsbury.

One thing that is clear from this is that when a company cuts its dividend, all is not lost. Sometimes it is prudent to do so and this was reflected in the markets in 2016 when the best performances in the FTSE 100 came from BHP, Rio Tinto, Glencore, Vedanta and especially Anglo American. See the table below:

Company

Dividend Cut

Share price increase

Anglo American

100%

329%

BHP Billiton

72%

80%

Vedanta

48%

255%

Rio Tinto

42%

68%

Glencore

48%

237%

This really highlights how markets can push things to extremes both on the upside and the downside.

Investors may want to look at this years big fallers, namely the house builders and other stocks that suffered from Brexit and ask if their share prices really are reflecting reality....

 

 

 

 

 

This email was originally sent on Friday 06 January 2017

The Friday email is delivered to over 20,000 subscriber’s every week, and remains a widely read run-down of recent events and what investors can expect in the week ahead written by our chief analyst Mark Riding.

It’s included as part of the free DividendMax trial.

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