We repeatedly wrote on dividends in a COVID context (20/02: Pay-out thoughts; 16/03: Dividends, Oops!; 27/03 Vanishing divs.) to describe what was bound to happen but escaped most observers. It is now a mainstream idea that dividends are not going to be paid, including the 2019 variety due in 2020 as corporates saw their liquidity dry up in less than 10 days. Those which have not had their AGM yet will use the fact that the AGM is postponed and set to be virtual to wave goodbye to the 2019 payment, when not ordered to do so anyway (Banks).
As well, it is not much of a stretch of the mind to consider that with the ugly operating outlook for 2020, the 2020 dividend paid in 2021 is essentially gone. One may actually pray for not being asked to stump up for a necessary rights issue. In addition, it looks as if any government support (debt guarantee mostly) will be provided under the requirement that no dividend be paid for a while.
This is where family capitalism will be tested as providing an extra safety net for minority shareholders. At AlphaValue we have always been harbouring healthy suspicions about the theoretical alignment of families with skin in the game with the ordinary saver.
We provide here a summary table of the dividend history and outlook for a number of issuers under family influence. For some there have been cuts over the last week as decided by our analysts.
The following table is very much work-in-progress trying to combine dividend coverage by FCF (last column and pecking order of table), downgrades to dividend expectations over the last month and spot expectations in €m. The years in the table refer to the years in which dividends are paid (2020 means 2019 dividend).
One may observe that
1/ Businesses with less than a 3x coverage by FCF are at risk of a dividend being trimmed as a rule of thumb
2/ Corrections have already happened with companies suffering the most being those with the lowest FCF coverage
3/ The bottom part of this table should be comparably safer
4/ Some consolidation issues, such as Pargesa’s, mean that FCF is a weird concept
5/ Family influence is a broad concept that will onboard situations such as Alba (a family-driven holding company) being the largest shareholder of Ebro
The 68 companies’ list is available : click here
Founded in 2007, AlphaValue is the world’s leading provider of Independent European Equity and Credit Research. We provide comprehensive, unconflicted research-only (no execution, no corporate finance) coverage of c. 480 European mid and large cap stocks. We have an average of 46% of negative recommendations at any one time. Learn more at www.alphavalue.com