The MAM Blog – A Dearth of Dividends

Murray Asset Management – Investment Management Team

For many investors, an important part of investing in the stock market is the generation of income. That’s usually available in two forms: the investment manager can sell some of your investments and send the proceeds to your bank. Alternatively, they can choose investments for you that generate an income by way of interest or dividends. The difference between the two is that a share, once sold, won’t give you that income stream anymore; while dividends usually continue to be paid over time.

Until now.

In the past few weeks, many companies in the stock market have announced that they are cancelling or suspending payment of dividends. That’s mostly for one of two reasons – either the Board are simply being prudent, husbanding their resources in the face of some short-term unquantifiable challenges; or it may be political. If a company has to accept government support in furloughing staff or taking emergency loans, they’re unlikely to want to be seen handing over cash to shareholders, no matter how badly the shareholders need it. This is causing problems for some investors.

Different shares, trusts and funds are reacting in different ways – some are continuing to pay, others aren’t. Some investors may be able to withstand these pressures, at least in the short term. Where the regular income stream from a portfolio is important, though, some changes might need to be made to the investments in order to achieve that goal.

What is also important, though, is for the manager to be aware of any change to the investor’s personal circumstances. We are all living very different lives compared to only a few weeks ago; for some people, that has meant that earned income has fallen or disappeared altogether, while for others the income streams are largely unchanged and it is outgoings such as travel costs which have come to a halt. Where portfolio income has become a greater priority, it is important to make sure that the manager is aware so that options can be reviewed and changes made, where possible.

The communication may need to be made at a suitable social distance, but it is well worth getting in touch.