Which UK companies are at risk of dividend cuts in 2016?


Drinks giant Diageo, foods business Tate & Lyle and telecoms company Vodafone could face dividend cuts in 2016, according to Canaccord Genuity Wealth Management.

Simon McGarry, senior equity analyst at the firm, has compiled a list of 15 UK companies he expects to cut their dividend this year, based on criteria ranging from a dividend yield greater than 3 per cent to an expected decline in cashflow returns.

Other criteria include: dividend cover greater than 1.7x; prior and current year earnings-per-share growth in negative territory; and net debt greater than Ebitda.

Already this year, the world’s two largest miners Rio Tinto and BHP Billiton cut their dividends, while Barclays announced in March it would slash dividends in half for two years in order to preserve capital.

McGarry says companies are under to pressure to keep dividends up as ultra-low interest rates have driven a “hunt for yield”.

The dividend payout ratio for the FTSE 100 now sits at 70 per cent.

“Now the interest rate tide is ebbing out again, we are likely to see who has been swimming naked in the dividend sea,” McGarry says.

Telecoms business Inmarsat, machinery manufacturer Weir and electronics business Electrocomponents were among the larger businesses McGarry saw at risk of a dividend cut this year, although smaller businesses, like stamp and coin retailer Stanley Gibbons also featured on the list. Rio Tinto was also included.

Last year dividend cuts were seen at food retailers (Tesco, Sainsbury’s and Morrisons), miners (Anglo American, Glencore) as well as Standard Chartered, Centrica, Rolls Royce and Amec Foster Wheeler.