Close Brothers announces reduced dividend amid challenging economic climate

Close Brothers announces reduced dividend amid challenging economic climate

Close Brothers plc has announced a final dividend of 40.0p per share for the year ended 31 July 2020, amounting to an estimated £59.8m to be paid out to shareholders in November 2020. Despite the company’s progressive dividend policy, this is down from the final dividend payment made a year ago of 44p per share. This proposed cut will be put to a vote at this year’s AGM. This, combined with the FTSE 250 company’s announcement in April that it was cancelling the interim dividend, brings the total annual dividend down by 39% from 66 pence per share paid out for the financial year ending July 2019.

In its half year report released on 10 March 2020, Close Brothers commented on the strength of its financials, stating that it had ‘delivered a return on opening equity of 13.6% (2019: 16.1%) and are pleased to declare an interim dividend of 22.7p (2019: 22.0p), up 3%.’ However, on 2 April 2020, in response to the pandemic, the company announced that it had cut its interim dividend ‘recognising the significant challenges currently faced by businesses and individuals, and consistent with our purpose of helping the people and businesses of Britain.’

This year, despite the company recording a pretax profit of £140.9m, (down 47% from £264.7m a year ago), Close Brothers announced their intention to pay a final dividend, albeit at a lower rate. In the company’s preliminary end of year results, published on 22 September 2020, the company confirmed that the proposal of a dividend payment ‘reflects the board's confidence in the group's business model and strong financial position, notwithstanding the current uncertain environment.’

Newly appointed CEO, Adrian Sainsbury, stated in response to the final year results that ‘The impact of Covid-19 has been felt across our businesses and the outlook is still uncertain, but the fundamental strengths of Close Brothers remain unchanged. Our resilient model and the experience and expertise of our people leave us well positioned to respond to opportunities and to continue to support our customers and clients into the future.’

Like Close Brothers, several companies have cautiously decided to either cut or pay a reduced dividend to shareholders this year. FTSE 100 company, St. James's Place plc, cut its final dividend payment for year end 31 December 2019, retaining ‘11.22 pence per share, or around one-third of the proposed 2019 final dividend, until such a time when the financial and economic impacts of COVID-19 become clearer.’ The company stated that ‘Whilst our business is resilient, we are not immune to how the unprecedented level of uncertainty may impact the operating environment for the business and our clients for the foreseeable future.’ It was later disclosed in the half year report that the company would cancel its interim dividends for 2020.

Several FTSE 100 companies have cut their dividends this year, although the percentage cut has varied widely. While mining company BHP Group implemented a modest 10% reduction, chemicals specialist Johnson Matthey cut the proposed dividend by half, and Chilean conglomerate Antofagasta imposed a cut of 70%. With restrictions in light of the coronavirus pandemic set to continue, this is likely to be a recurring theme as we make our way into the new year.

In addition to dividend cuts, many FTSE 350 companies decided to cancel the final dividend payment altogether. Recent research conducted by Market Tracker found that 73% of withdrawn resolutions this AGM season related to the payment of a final dividend. Withdrawn resolutions and other AGM related results will be further explored in the upcoming Shareholder Voting Trend Report, to be published in October.

One of the most noteworthy developments in relation to dividend payments this year was the shareholder opposition to a proposed dividend at the TI Fluid Systems AGM on 14 May 2020. The company put forward a dividend payment of 5.94 euro cents per share despite revenue loss of 16% and being forced to furlough workers and make salary cuts across the board in response to the pandemic. The resolution was voted down by 57.3% of shareholders. For more detail on this, see our news story: TI Fluid shareholders hit the brakes on final dividend.

Related Articles:
Latest Articles:
About the author:

Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.