3rd June 2020
Aberdeen Standard: Income investing in a pandemic – finding a way through
As a consequence of the global pandemic, we currently find ourselves in unchartered waters. Daily life has been altered beyond recognition for many of us and will likely remain that way for some time to come. It’s unfamiliar territory for investors too, as we grapple with the effects of the wide-scale lockdown on companies, economies and financial markets.
For income investors in particular, the environment is completely unprecedented. In the UK, 43 of the FTSE’s 100 companies have cancelled, cut or suspended their dividend payments. That includes major UK companies that have previously been considered totems of dividend security.
Companies have taken these actions for a variety reasons. Banks and insurers face regulatory pressures, and have been told by the Bank of England’s Prudential Regulatory Authority not to pay dividends. Others companies have taken government assistance during the pandemic and so have refrained from paying shareholders for fear of bad press. For a number of businesses though, it’s about taking a cautious approach and preserving cash when the economic outlook remains so opaque.
This backdrop is obviously important to income investors, given the significance of dividends and dividend growth for investment returns. We were already dealing with a world of low growth, low interest rates and low inflation. Then the pandemic came along and added to these pressures. This year, income is expected to be 40-50% lower than 2019. So what kind of investment approach might help income investors navigate this new terrain?
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