Dividends — the directors’ cut
At least the savers whose interest rates have been squeezed still have their money in the bank. Shareholders, by contrast, are seeing their dividends slashed after also suffering substantial share price falls — and there is no compensation scheme to cover their lost capital.
That is a risk of equity investment but there was a time when cutting the dividend was the last thing a company did; now it’s top of the agenda as soon as business gets tough. When ICI reduced its payment to shareholders during the 1980 recession, its directors were pilloried and its share price plunged; now, freezing the dividend, cutting it — or even totally abolishing it — is part of the macho, hair-shirt management style of directors desperate to show that they are doing something. In comes a new board, out goes the shareholders’ payment.
The number of companies cutting their dividends rose six-fold last year but with 2008 results now being announced, dividend falls and freezes are outnumbering increases.
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