Richard Buxton has had a pop at regulators for urging companies to suspend dividends while lauding Legal & General for standing its ground and telling them to “bog off”.
The head of UK equities at Merian Global Investors was speaking during a webinar on Thursday addressing the outlook for UK plc after Covid-19.
He said: “It was easy for the financial regulator go, ‘Oh, first sign of trouble, let’s just suspend dividend payments and if things pan out not too bad then you can pay them all back again’. I kind of applaud Legal & General for going, ‘Well we hear you but, no, bog off we still think that we’ve gone through all our stress tests.”
Buxton’s comments come after UK regulators urged financial services companies to can dividends.
UK banks cut £7.5bn worth of distributions for shareholders at the end of March following pressure from the Bank of England.
Prudential Regulation Authority chief executive Sam Woods also wrote to insurance industry CEOs urging caution over dividends, telling them to “pay close attention to the need to protect policyholders and maintain safety and soundness”. But he did not go as far as issuing a ban.
The European insurance and pensions regulator Eiopa also urged insurers to temporarily suspend all dividend distributions and share buybacks.
The Investment Association has said dividends play an important role in the wider economy and that Covid-19 should not be an excuse for companies to cut distributions to shareholders.
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But while all the major banks have suspended shareholder payouts, Legal & General, as well as Phoenix Group, another FTSE 100 insurer, remain intent on paying a final dividend for the year.
Buxton added: “Frankly, if you at the first sign of trouble have to suspend all dividend payments then in the long run this is going raise your cost of equity. So I think there has to be a serious inquiry after this about the wisdom of what the regulator has done.”
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‘I’m more interested in holding Shell now’
Buxton was speaking on the same day Royal Dutch Shell announced it had cut its dividend for the first time since the second world war, slashing its quarterly payout to 16 cents per share from 47 cents. It was the FTSE 100’s largest dividend payer in 2019.
On Shell’s dividend yield dropping to 3.8%, he said: “Relative to bonds and base rates it is actually not unattractive. I’m more interested in holding Shell now than when it was yielding north of 10 and, in my view, clearly unsustainable.”
Large income funds are problematic
Despite the raft of dividend cuts across the board, Buxton said he thinks there will still be large cap stocks in areas of the market that offer dividend growth.
“But I’m very grateful I’m not trying to run a very large income fund, because I think that is going to be problematic,” he added.
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Royal Dutch Shell is not among the top 10 holdings in Buxton’s Merian UK Alpha fund but fellow UK oil giant BP is the eighth largest position at 4.1% of the portfolio.
