UK plcs paint a picture of health
When well over 100 plcs report results in a single week they present a good picture of the state of British business. And the canvas painted is one of cash-rich companies eager to hand out dividends.
Businesses that have not previously paid dividends for accounting periods ending in June have made maiden payments. Companies that cancelled distributions when the credit crunch struck have restored them. Firms that continued sending out cheques have made inflation-busting increases to investors this year.
Rises of 10 per cent are at the mean end of the scale. The Diageo drinks company raised its final payment by 9.3 per cent, but engineering group IMI is paying 12.5 per cent more; advertising agency WPP has gone for a 15 per cent rise, Admiral insurance is up 17.7 per cent and the Amec services firm’s dividend has risen 19.7 per cent.
Serco raised its payment by 19.9 per cent, despite its reliance on public contracts, and Irish bookie Paddy Power is paying its investors an extra 28 per cent.
There are several even larger increases – such as the 50 per cent at FTSE 100 oils groups Aggreko – but this wide cross-section of UK companies shows no restraint on pay-outs.
The dividend picture is much rosier than the profits they present, suggesting optimism for the future by finance directors.
A third of the companies reporting had worse profits than previously, or even losses – sometimes worse losses – but most companies increased their dividends. Only four made cuts of those reporting in the week before the bank holiday.
The reason so many companies reported at once is the pressure from the Financial Reporting Council to produce results within two months of the end of an accounting period. For companies producing figures for the year or six months to June, that meant rushing them out before the August bank holiday.
Such a flood – including Super Thursday when more than 70 companies reported – is not good for investors but it does create this unique perspective of UK plc.
And the willingness to hand out cash as dividends shows why the government is misguided in trying to force banks to lend to British businesses.
Firms do not want to borrow. They may have cut back on capital spending because of the uncertain future or have improved their margins by squeezing suppliers, but the result is they are flush with cash. They are repaying loans and handing over surplus liquidity to shareholders.
A cynic may think they are buttering up investors ahead of equity issues. Perhaps, but that was last year’s trick and it is unlikely to be repeated next year.
However, with interest rates so low, and share prices still static, the yield on the FTSE is around 3.5 per cent – sufficient to attract institutional buying if these dividend increases can be maintained.
