Gateley Dividends Are Staying Home: Firm withholds shareholder payout amid Coronavirus outbreak

April 20, 2020

2 min read

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What's going on here?

On 24 March, Gateley announced that it was cancelling an interim dividend payout worth £3.4m in a bid to bolster the firm’s short-term liquidity in the face of the Coronavirus pandemic.

What does this mean?

Following a healthy set of financial results from the previous year, Gateley announced a 2.9p per share interim dividend to be paid on 31 March. However, like most other listed companies, Gateley’s performance has been adversely affected by the Coronavirus outbreak. The firm’s share price plummeted from an all-time high of 218p in mid-February to 116p on 1 April. Gateley’s board expressed that economic uncertainty made it “impossible to predict the Group’s likely trading performance in the short-term”. Therefore, it decided that it would be “prudent and in the best interests of all stakeholders” to cancel the dividend payout in order to maximise cash flow. This move is in line with a string of dividend cuts by UK firms. The total value of the cuts has surpassed that of the 2008 financial crisis, and analysts believe it will continue to rise. AJ Bell estimates the sum could reach £30bn. Russ Mould, director at the investment firm, said: “the pace of cuts is picking up. More look inevitable as companies scramble to preserve cash”.

What's the big picture effect?

These dividend cuts highlight the extreme economic impact of the pandemic, as many firms fear that their liquid assets may be insufficient to survive it. In the presently uncertain and unpredictable economic climate, conserving cash is a pragmatic way to improve chances of survival. It is not just firms that have been negatively impacted by the virus that are taking steps to bolster liquidity. Despite increased demand in recent weeks and a 5% rise in share price, Domino’s Pizza has cut dividends worth £25.7m, as “the volatility of delivery sales” and “an uncertain outlook” required “a cautious and prudent approach”. Mould stressed the advantages of this course of action for the long-term health of the firm. He said: “if a dividend cut is part of the price that must be paid to ensure a firm’s long-term survival, then investors may well come to accept it, even if the loss of the precious payments is a big blow. Taking the pain now can mean that companies are in a more robust state to weather the upcoming disruption and quickly reinstate the dividend in the future”. As the UK economy advances into the eye of the Coronavirus storm, firms must assess their short-term cash flow needs and how to meet them. We can expect further dividend cuts as firms fight to survive.

Report written by Isobel Deane

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