Investors relying on company dividends to pay them a reliable income have been hit hard by the market sell-off but there are some areas of them market that will keep paying out.
Since the outbreak of coronavirus and the subsequent market collapse, 284 companies have cut or stopped their dividend payments to conserve cash in this difficult time.
BP this morning said it would maintain its quarterly dividend, paying 10.25 cents a share, despite falling to an “historic” loss in the first three months of the year.
But with the property market frozen, stores closed and banks cancelling dividends to shore up their balance sheets, a large percentage of dividend-paying companies no longer offer a reliable income.
Simon McGarry of Canaccord Genuity, a wealth manager, said in the worst case scenario “up to 50pc of British dividend income might disappear in the first half of 2020”. However, he said while “there are no sure things” in the stock market, there are some sectors proving resilient.
The firm analysed several factors, including debt and cash levels, and how much the stock is yielding at its current share price.
Manufacturing has ground to a halt in recent months as people have been forced inside, with factories shut and workers unable to complete projects. This lack of demand has caused the prices of some metals to fall but others have held up.
Iron ore, for example, is currently worth around $80 (£65) a ton, up from $60 per ton five years ago, although it had been as high as $120 last year.
Miners should be more reliable divi payers than other areas, Mr McGarry said, with BHP Billiton and Rio Tinto – two of the largest listed in Britain – particularly well placed to make their payouts.
The former has a dividend yield of 8.3pc but its profits cover payouts for more than a year, meaning it should be able to pay an income even if its earnings fall. It also has little debt in the business.
The share price has fallen by a third in the past three months, but the company is now valued on a low price-to-earnings (p/e) ratio of eight times – a common way to value a stock that divides its total market valuation by expected profits.
Rio Tinto has a 6.8pc dividend yield and its profits are double the current payout from dividends. The share price has dropped 17pc in the past three months and the company has a p/e of 10.