UK equity chiefs anticipate 'profound change' in corporate debt and dividend culture post-pandemic
Buxton, Williams and Custis prep for cuts
UK equity fund heavyweights Richard Buxton, Gervais Williams and Alan Custis are among the investors expecting recent high-profile dividend cuts to mark a “profound change” for investors, with investor pay-outs set to shrink permanently when the coronavirus-induced crisis subsides.
It follows news on Thursday (30 April) that Royal Dutch Shell would be cutting its dividend by two-thirds, in the first such move for the world's largest dividend payer since the Second World War. Shell joined a number of other traditionally high dividend payers, including Sainsbury's, opting for a dividend cut.
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Speaking on a call alongside Williams and Custis yesterday, Merian Global Investors' head of UK equities Richard Buxton said the "longer-term ramifications" of the ongoing crisis are likely to be a cultural change among corporates in the levels of debt they have built up between the 2008 Global Financial Crisis and now.
He explained that without being able to use leverage to "juice" returns, it will likely mean "return on equity could be lower" and "dividends may well be lower".
Criticising companies' use of debt over recent years, Buxton added: "If that leads to a more stable economic cycle, then personally I would be all in favour of that."
With regard to Shell specifically, Buxton said he "applauded" the board's "incredibly difficult" decision and he "looks forward… to [Shell] providing much more detail about the investments they are going to be making in the energy transition to renewables and the sort of returns that they hope to be able to get from that going forward".
He added: "I have argued for some time that the oil majors should not be maintaining their distribution levels."
On the same call, head of equities at Premier Miton Investors Williams also pointed to increasing corporate debt levels, with central banks around the world having "used and reused" quantitative easing since 2008 "every time there has been a wobble", thereby giving "the opportunity for companies to continue to use debt that is low cost and freely accessible".
He added: "Many companies now assume they can just roll over their debts whenever they become do."
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