Ignore the return of the ‘bull’ market and focus on this red flag instead
W here there’s a bull there is often a red flag and this occasion is no different. This week the FTSE 100, an index of Britain’s biggest companies, emerged from “bear” mode and entered “bull” territory, meaning it had risen by more than 20pc from its most recent low.
The next morning Shell, Britain’s most generous dividend payer, cut its shareholder payout for the first time since the Second World War. Talk about mixed messages. In this case, investors should pay more heed to the cloud than its silver lining.
In Britain, dividends are more important for investors than share price gains. The “total return” of the FTSE 100 over the past five years, which includes every dividend paid and reinvested into the stock, is 8pc. When dividends are excluded, the index has lost 13pc, meaning £1 invested in 2015 is now worth 87p.
A third of FTSE 100 companies have already cut their dividend this year – including stalwarts such as insurers, housebuilders and banks – representing tens of billions of lost income for investors. Analysts predict it could take eight years to return to the levels of last year’s record payouts.
Shell’s announcement will be felt particularly keenly as the biggest dividend disher on the FTSE 100, handing out more than £12bn last year. It is the second most popular stock for income, held by two thirds of income fund managers.
