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Questor: our income feels the impact of the coronavirus crisis – the portfolio’s first dividend cut
Questor Income Portfolio: Crest Nicholson has become the first of our holdings to cancel a dividend, but Next and OneSavings hold firm
That didn’t take long. Yesterday morning the first of our holdings announced a dividend cut as a result of the coronavirus crisis.
Crest Nicholson, the builder, said it would no longer pay a final dividend for the year to October 2019, which shareholders had been due to approve at its annual meeting next week.
As a result, all that we will receive for the full year is the interim dividend of 11.2p, paid in October. That takes the yield down to 2.6pc relative to our purchase price of 435p in November 2016.
The company said: “The board has carefully considered this week’s rapidly evolving government guidance in respect of Covid-19 and expects this to have a significant impact on visitor levels, production capability and trading performance over an unclear timeline. Accordingly, the company has taken the difficult decision to cancel its final dividend.”
The shares have also fallen by about 55pc relative to our purchase price and by 62pc since a recent peak of 519p last month. However, this is always of less concern to us than income. Coronavirus is temporary (we hope) while Britons’ determination to own their own home is immutable. Demand will return and so will dividends. We will hold.
Questor says: hold
Ticker: CRST
Share price at close: 182.3p
Update: Next
The fashion chain announced full-year results yesterday. It did not cancel its dividend but changed its approach.
Instead of announcing a final dividend as it normally would, it said it would pay a “second interim” dividend of 116.5p (the same figure it intended to pay as a final) in August but retain the option to delay payment by up to three months if it needed to retain cash in the business because of the virus crisis.
Proposing a final would have committed the firm to the payment; the new approach gives it more flexibility.
Next added: “In the event the business needed to conserve cash, we could suspend both the August 2020 and January 2021 dividends, which would retain £220m in the group.” It described this as “a last resort”.
We applaud the firm for this pragmatic approach and hope and believe that the dividend will be paid.
Questor says: hold
Ticker: NXT
Share price at close: £40.54
Update: OneSavings Bank
The buy-to-let lender also announced annual results yesterday and there was reassuring news about its dividend. The situation is slightly complicated by the merger with Charter Court, completed in October, but the dividend was as expected. The board recommended a final payment of 11.2p, which gives a full-year figure of 16.1p.
It said: “Together with the pre-merger Charter Court interim dividend of 4.3p, this is in line with our target dividend payout ratio.”
The bank’s statement included a long list of possible ways in which the virus could affect it. But the fact that it is choosing to pay the dividend reassures us that it doesn’t expect a severe impact.
In Questor’s view, its borrowers should be able to make their repayments, backed by rental income, unless the epidemic crushes economic activity for several months, which does not strike us as likely. In the absence of a lengthy shutdown, properties should retain their value and savers should continue to deposit their money with the bank to allow it to fund its loans.
Questor says: hold
Ticker: OSB
Share price at close: 200p
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Update: bonds
Some of our bonds have been affected by the crisis: the Paragon Bank bond is now 38pc below par value, Ladbrokes is 29pc below and LendInvest 26pc below.
Ladbrokes’ parent company has put out a reassuring statement on its financial position in connection with the virus impact, while the other two have said nothing; the listing rules would force an announcement if there were something material to say. We will of course keep all under a close watch. Hold.
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