Interactive Investor

The only three FTSE 100 shares not expected to pay a dividend this year

23rd June 2022 15:55

Graeme Evans from interactive investor

Dividends paid by UK blue-chips have been a big attraction in 2022, but this trio won’t be returning cash to shareholders anytime soon.

All but three FTSE 100 index stocks are forecast to pay dividends this year as London’s top flight index offers investors the chance to offset some of their inflation-driven pressures.

The FTSE 100 as a whole currently trades with a trailing dividend yield of about 3.4%, which beats most other global markets and compares with the S&P 500 at about 1.2%.

The vast majority of blue-chip stocks are dividend paying, with some like miners Rio Tinto (LSE:RIO) and Glencore (LSE:GLEN) and housebuilders Persimmon (LSE:PSN) and Berkeley (LSE:BKG) trading with forward yields above 10% to reflect their ability to return cash built up on their balance sheets.

The income status of the FTSE 100 reflects a remarkable turnaround in the two years since the pandemic caused Shell (LSE:SHEL) to cut its dividend for the first time since the Second World War. Others withdrew payments completely in order to conserve cash.

Globally, banks accounted for one-third of dividend reductions by value, more than three times as much as oil producers, the next most severely affected sector. Six in 10 consumer discretionary companies cut or cancelled payouts, but the classic defensives - food retail, pharmaceuticals and personal products - were well insulated.

Just two FTSE 100-listed stocks who were paying dividends prior to the pandemic have yet to resume payments, with little sign that engines giant Rolls-Royce (LSE:RR.) and British Airways owner International Consolidated Airlines Group (LSE:IAG) are about to change that position.

In the case of Rolls, some of its loan facilities place restrictions and conditions on payments to shareholders until 2023. Even then, the board will need to be satisfied about progress in strengthening the balance sheet after only recently returning to cash generation.

IAG withdrew a previously announced dividend in April 2020 and has been further thwarted by the airline industry’s position as one of the last sectors to recover from the pandemic.

Barriers to a dividend return include current liquidity requirements, as well as the loan restrictions and conditions that prevent the distribution of reserves from the group’s operating companies to the main group.

Ocado is the third FTSE 100 company without a dividend, with shareholders not expecting a payment anytime soon given that the grocery warehouse technology company has just tapped them for £578 million.

This week’s placing of new shares was the second by the company in two years as it looks to generate the firepower to ramp up international capacity and invest in new technology.

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