How to survive the dividend drought

How to survive the dividend drought: Covid sent payouts plummeting in the second quarter… but relief may finally be at hand

PUBLISHED: 21:51, 14 August 2020 | UPDATED: 08:43, 15 August 2020

If you are one of the many investors who need an income, prepare for a little good news.

A few big name firms have resumed paying dividends, and there are some generous yields on offer…

A high yield may look alluring but can be a warning sign, telling you that investors are demanding a higher income to compensate them for taking a higher risk. And divis that are deemed too high are apt to be cut.

Anyone drawn to the current yields on BP and Shell – 9.10 per cent and 8.24 per cent respectively – should prepare for lower payouts…

You need to check not only the yield, but also the dividend cover, a measure of a company’s ability to afford the payout. This is calculated by dividing earnings per share by the divi per share…

Alternatively, if you don’t want to pick your own shares, you can opt for an income fund or investment trust.

Their task is also harder given the widespread cuts, but Murray Income Investment Trust’s portfolio contains names committed to carry on paying.

James Carthew of analysis group QuotedData says: ‘Only three companies in the top 20 holdings at the trust have cut their dividends.

‘They are Rentokil, Inchcape and Close Brothers, and the latter was forced to by the Bank of England.’

At this difficult moment, let’s be grateful for companies that value their shareholders and pay them a dividend.

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