A (grim) tale told today in three related charts.

The first is from the regular LINK Dividend monitor which tracks regular payouts by UK PLC. The headlines are below, with the accompanying chart mapping out the full horror of it all in the second quarter of 20020. For me the interesting number is the dividend yield in future years. According to LINK, their best case scenario is a yield of 3.6% in the next twelve months or 3.3% in their worst case. Some perspective here : the long term UK dividend is probably hovering around the 3.5% to 4.5% range but still I think a best case of 3.6% is still terrible. One could use that number to imply that the UK market is arguably at least 10 to 20% over valued if we use dividends as a signalling device for equity value.

Here’s the headlines from the LINK Dividend monitor:

  • Covid-19 caused unprecedented cuts in dividends in Q2 2020, down £22bn on a headline basis; they fell £16.4bn on an underlying basis (i.e. if special dividends are excluded)
  • 176 companies cancelled payouts and 30 more cut them, together representing three quarters of Q2 payers
  • In the aftermath of the Global Financial Crisis (GFC), just two fifths of companies cut or cancelled payouts
  • Dividends fell 57.2% to £16.1bn on a headline basis, or 50.2% to £16.0bn if special dividends are excluded Top 100 payouts fell 45% in Q2 compared to 76% for the mid-caps
  • 2020 will see payouts fall at best 39% to £60.5bn on an underlying basis, or 45% in headline terms (which includes special dividends). At worst they will fall off 43% to £56.3bn on an underlying basis, or 49% on a headline basis case scenario (in line with the long run average of 3.5%) or 3.3% on a worst-case scenario

The next chart in my trifecta of grim-ness is from HIS Markit and looks at household spending over the long term. The drop in Q2 was truly catastrophic and although there has been a rebound we are still a LONG, LONG way from regaining a sensible level of consumer confidence. Thus the government’s increasingly panicked invocations to SPEND, SPEND, SPEND. According to HIS Markit, their index registered 41.6 in July, up slightly from 37.8 in June “but still much lower than at any time in 11 years of survey data prior to the coronavirus disease 2019 (COVID-19) pandemic.”

For me though the slightly more interesting observation is this: “Households appeared focused on reining in debt and supporting their savings where possible, according to the latest survey data. As a result, the index measuring demand for unsecured credit fell to 49.3 in July, from 50.1 in June, to signal an overall drop in households’ appetite for unsecured borrowing for the first time since the survey began in February 2009.” Economists wouldn’t be surprised I am sure by this retrenchment and it absolutely backs up the argument that the government thus needs to step into the breach and deficit spend like crazy. But still this spurning of debt is fascinating. I dread to think what’s happening in those economies where the fiscal activism is more restrained i.e places like Russia.

Last by no means least I finish with the final chart, this time courtesy of the always excellent John Authers over at Bloomberg Opinion. Its from Deutsche and shows as close as real time as we can get for the number of people eating in restaurants.

Germany is back to normal levels, but the US is still down 60%.

I dread to think what the equivalent number is in the UK. Very few restaurants I pass seem to be full – in fact many seem closed. In particular I’m surprised by the country dining scene, especially gastro pubs. More than a few popular hotspots in my neck of Hampshire are still resolutely closed, despite the sheer quantity of wealthy, older local consumers. My impression is that the older, wealthier middle classes are still on a consumer strike whilst working class areas seem much more vibrant. If anyone is rescuing the UK economy, it seems to me to be ordinary working people, especially younger ones. The older affluent seem happier sitting at home complaining about the youngsters and “the masses”, oblivious to the economic ruin they are creating around them.