Dividend dump coincides with increase in shorting, finds research

“The reality is that we will probably see more cancellation or reduction of dividends as businesses struggle to preserve cash”

888 Holdings -

While 162 companies cancelled or suspended their dividends since the middle of March, there has been a big increase in the number of short positions taken out by investors, according to new research.

Some 92% of announcements from UK listed companies about dividends involved cancelling or suspending payments between 19 March to 20 April, GraniteShares found. 

There were only 14 companies that made dividend payments in that period, GraniteShares said: Chesnara, 888 Holdings, Winkworth PLC, S&U, Tesco, Tritax Big Box, Greencoat UK Wind, Anglo Pacific, Hilton Foods, Sabre Insurance, Hunting, Ocean Wilson Holdings, Mortgage Advice Bureau and SCS.

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During that time 40% increase in the number of net short positions reported to the City watchdog than the same period last year, the ETF provider found.

“The cancellation or suspension of company dividends is hardly surprising given the backdrop of the lockdown and the economic uncertainty caused by the Coronavirus pandemic,” said Will Rhind, founder and CEO at GraniteShares. 

“Companies need to preserve cash, however the drying up of dividends creates an additional negative feedback loop for the economy adding pressure on those who rely on dividends as a source of income.

“The ability to take positions to profit from prevailing conditions is one way that investors can potentially compensate for lost income.”

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He said this there had been a simultaneous pick-up in investors shorting stocks during the period.

In fact there were 40% more net short positions reported to the FCA than the same period last year, according to Granite’s analysis industry data.

Given the economic crisis that has resulted from the Covid-19 pandemic, Rhind felt that it is likely to be some time before most companies’ earnings return to pre-pandemic levels. 

“It is only then that we could hope to see dividends returning to their 2019 levels.  

“The reality is that we will probably see more cancellation or reduction of dividends as businesses struggle to preserve cash.  

“Income-seeking investors are likely to be distancing themselves from such companies, while being drawn to those in sectors that have been less affected by the pandemic and still in a position to pay dividends.”

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