Amid the crashing of FTSE 100 share prices, if you listen carefully you can also hear the sound of dividends pausing.
Housebuilder Persimmon (LSE: PSN) is one of the latest in the FTSE 100 to suspend its payments, telling us on Wednesday that it’s decided to “cancel the proposed 125p per share interim dividend payment of surplus capital to shareholders on 2 April 2020.” In addition, the final ordinary dividend of 110p per share will be postponed and reassessed later in the year, “when the effects of the virus will be clearer.”
It can take courage to suspend a FTSE 100 dividend, as it’s usually seen by those in the City as a sign of failure. But as a Persimmon shareholder, I fully support this action. I’m sick of seeing companies putting their balance sheets at risk to satisfy short-term demands for cash payments, and I applaud those company directors who prioritise the long-term health of their companies.
Persimmon shares have fallen 40% so far during the coronavirus pandemic, and that’s after a welcome rebound over the past week.
Next to fall?
Taylor Wimpey (LSE: TW) must be a candidate for a dividend suspension too, though the FTSE 100’s biggest housebuilder hasn’t said anything since February’s full-year results.
There’s probably less urgency, as the company has already confirmed its payments. They’re subject to shareholder approval, but I can’t really see any big City institutions rejecting the cash.
With the Taylor Wimpey share price down 45%, the forecast dividend for the current year offers a staggering yield of 15%. Due to the timing of its results, Taylor Wimpey has a bit of breathing space now. And it doesn’t face the same need for immediate preemptive action. But I wouldn’t put a lot of confidence in that dividend forecast holding up.
A suspension would surely be wise, and I fully expect to hear of one before we reach the halfway stage this year.
Once the Covid-19 threat has passed, the UK will still be facing a major housing shortage. So, two companies providing essential services, both in fine financial shape, and with no debt pressures? Yep, both still long-term FTSE 100 buys in my book.
FTSE 100 banks
It would be hard to look at risky FTSE 100 dividends without considering Lloyds Banking Group (LSE: LLOY).
I’m a long-suffering Lloyds shareholder, and I’ve been buoyed by the progress the bank has made since the financial crisis. But it’s been one long series of setbacks, with the most drawn-out being the UK’s painfully dithering Brexit years.
Since the virus threat, Lloyds shares have lost a further 35% of their value. Based on current forecasts, Lloyds shares are on a laughably low forward price-to-earnings ratio of 6.4. That’s less than half the long-term FTSE 100 average, and to my mind it means one of two things. Either Lloyds shares are a screaming bargain, or the bank is at risk of going bust.
Still, if the share price is slumping, at least we have our dividends, right? Anyone buying now would be looking at a forecast 8.6% yield. But I don’t expect that to happen. I think a cut in order to preserve balance sheet strength is needed.
But will Lloyds go bust? I really don’t think so, and I’m most definitely not selling my shares.