Interactive Investor

Dividends are back after a year of disappointment

4th August 2020 15:38

Graeme Evans from interactive investor

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Three companies announced dividend payouts today in an encouraging sign for investors sick of slashed incomes.

The dividend taps were today turned back on at Direct Line Insurance (LSE:DLG), Rotork (LSE:ROR) and Spectris (LSE:SXS), signalling a change of fortunes for investors after a year of vanishing stock market pay-outs.

Even if the trio's dividend awards are small beer in comparison with this morning's halved BP (LSE:BP.) dividend, it is still encouraging that companies are willing to loosen the dividend shackles.

Their moves come after a savage period for income investors. The recent Dividend Monitor from the Link Group reported that dividends fell by more than £16 billion in the second quarter of the year as blue-chip companies deferred, cut or cancelled their payments.

The pain continued today when the biggest dividend left in the FTSE 100 index was halved by BP, albeit to a level higher than City expectations. And with an implied dividend yield of around 6%, the energy giant still remains attractive in the current interest rate environment.

Direct Line, whose brands include Privilege, Green Flag and Churchill, said its financial resilience in the face of Covid-19 disruption meant it would be able to pay its half-year dividend of 7.4p a share as well as catch up on the 2019 dividend it paused earlier this year.

The decision follows a robust set of half-year results, with Direct Line's number of own-brand policies up 2% for a gross written premium of almost £1.1 billion. Operating profits were down 3.4% to £264.9 million due to increased weather costs of £30.4 million, but Direct Line also reported a strong capital position with a solvency ratio of 192% after dividends.

Chief executive Penny James said the company had continued the trading momentum seen at the end of 2019, despite the pandemic's impact. She added:

“We have seen just how quickly people change their behaviour and I am proud that we've been able to adapt rapidly whilst still making good progress on our strategic transformation.”

The decision to revive the 14.4p dividend from 2019 is a significant milestone in the financial services sector after banks were told not to pay dividends this year and many other insurers, including Aviva (LSE:AV.) and Hiscox (LSE:HSX), followed suit under pressure from European regulators. 

Direct Line shares jumped 8% to 333p, while Aviva and RSA Insurance Group (LSE:RSA) both rose 2%.

Among today's other dividend payers, shares in engineering company Rotork jumped 7% to 305.6p after it said it would pay the previously deferred 2019 dividend of 3.9p a share. It plans to review its options for the 2020 dividend at the end of this year, rather than committing to an interim payment with today's half-year results.

Chief executive Kevin Hostetler says this reflected the considerable uncertainty that still remains. He adds that production facilities were back operating at close to normal levels. Profits fell 4% to £50 million in the first half after a 16% decline in order intake to £300.5 million.

Bath-based Rotork operates in markets where the flow of gases or liquids needs to be controlled. It became a £3 billion success story after the steady ascent for shares up until the summer of 2018. These fell back to 191p in March, but are now close to where they were before the market sell-off.

Precision measurement firm Spectris is another reinstating its dividend.

It will pay 43.2p a share in October in lieu of its 2019 final dividend, with an interim of 21.9p due in November based on today's half-year results. A better-than-expected second quarter performance meant half-year revenues fell 13.7% on a like-for-like basis to £599 million, while adjusted profit declined 47.7% to £40.4 million.

Chief executive Andrew Heath said the Surrey-based company had moved quickly to support customers in new ways and at a lower cost. He adds: “As a result, our profit drop-through impact was limited and cash conversion was strong, such that we strengthened our balance sheet and liquidity position in the first half.

“This has enabled us to reinstate our dividend, restore salaries and bring people back to work, where appropriate.”

Ground engineering firm Keller Group (LSE:KLR), which has maintained or increased its dividend every year since flotation in 1994, also said today it would decide on its interim pay-out later in the year. At this stage, it remains cautiously optimistic about prospects after the company's order book held steady at £1 billion and half-year underlying profits rose 20% to £47.9 million. Keller is due to pay a dividend of 23.3p a share from 2019 trading on August 21.

In other dividend news, the AIM-listed fuel, feed and food distributor NWF (LSE:NWF) increased its full-year pay-out by 4.5% to 6.9p a share after a better-than-expected performance in the year to May 31. It was helped by a dramatic fall in the oil price and an increase in demand for heating oil from domestic customers during the lockdown.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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