Three-quarters of equity income funds cut payouts
Brian Dennehy
Focussing on the UK equity income funds, if you look at the last two months of dividend payouts three-quarters have cut payouts, which paints a bleak picture.
Nonethless, the reality is both not always as bad, and sometimes more complex.
For example, Threadneedle UK Equity Alpha Income cut this payout by 4.88%, compared to the same time last year, which isn’t too dramatic. Better still, this was the final payout of two made in the last year, and the total payout for the whole year compared to the previous year is up 8.8%, and the yield is an enticing 6.9%.
Even if you observe those funds have suffered much sharper cuts, the yields appear to remain attractive e.g. Gartmore UK Equity Income cut the payout by 31%, but the official yield remains at 5.29%.
The problem for those funds which have suffered larger double-digit cuts is the follow-through to next years dividend payout. For example, Gartmore’s recently declared payout, down 31%, is the last of two 6 monthly payouts for the year 2009. If the loss of bank dividends similarly impacts on the first payout for 2010, the yield could drop to 4.36% in 2010.
The actual outcome in 2010 depends on how such fund managers look to re-structure their funds to fill the hole in their dividend kitty, created largely, though not solely, by the banks cutting payouts. The cuts by funds are unlikely to be as severe in the next 6 months, but it will probably be some years before the payouts can be restored to prior levels.
As such investors and advisers will need to remain vigilant for some time to come, particularly those investors that rely on the income, perhaps within SIPPs generating income post-retirement.
In the meantime there are funds clearly handling this difficult environment rather well, such as from Newton and Threadneedle, as we consider below in "UK income payouts". And let us not forget that if interest rates don’t increase until 2011, as some analysts believe, high yielding equity income funds, with scope to increase payouts and capital values, remain stand-out choices.
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Date: 05.08.2009