Written by Citywire

April, 2020

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IA calls for FTSE transparency over dividend payments

FTSE companies that suspend dividend payments as a result of current market uncertainty will be expected to restart them ‘as soon as it is prudent to do so’, the Investment Association (IA) has said.

In a letter sent to all FTSE chairs on behalf of its members yesterday, the IA warned that while companies must assess the ‘suitability and sustainability’ of divided payments, it expects them to offer a level of transparency for shareholders. 

FTSE companies have been coming under increased pressure to scrap distributions in the coronavirus crisis, as last week banks were forced to cancel £7.5bn in dividends, while the European Union regulator also called for dividends to be suspended.

Elsewhere, there was some relief for income investors as Standard Life Aberdeen (SLA) committed to paying a £300m dividend

‘While IA members expect companies to take a prudent approach to current and future dividend payments, carefully assessing their ability to withstand financial stress, shareholders would be concerned if companies unnecessarily reduced or rebased the dividend level,’ Andrew Ninian, director of stewardship and corporate governance at the IA, wrote.

‘Shareholders would expect companies who do decide to suspend, to restart the dividend payments as soon as it is prudent to do so. Ultimately, shareholders will expect companies to be transparent about their approach to dividends, particularly, if they are seeking additional capital.’

In a show of ‘support’ to FTSE companies, of which IA members collectively own a third, the association also urged companies to maintain an open dialogue with shareholders over the coming months, and sought guidance as to how AGMs can proceed under current lockdown. 

It added that executive pay should continued to be aligned with the company’s performance, meaning if dividend payments are cancelled or workforce pay is cut, this should be reflected in the executives pay. 

Chris Cummings, chief executive of the IA, said: ‘Businesses in the UK and around the world are facing unprecedented challenges. The response to the Covid-19 pandemic has caused real strain across the economy and so it is right that investors help steady the ship.

‘The measures announced today will help company boards focus on leading their business through the crisis, looking after their employees, suppliers and customers, in the knowledge that their investors expect them to take a long-term approach to running their business.’

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