The great British shell-out is in danger of becoming a sell-out, according to Paddy Linaker, head of M and G, the lean and hungry investment group. In a private letter to nearly 300 chairmen Linaker urged recession-hit firms to maintain dividends rather than follow in the footsteps of GEC or Trafalgar House. Last month both companies decided against increasing dividend payments for this year, while Barratt Developments and Burton are among those which have already trimmed their cloth and cut back on the biannual handout.
Actually, Linaker has little to fear, though people with a longer-term perspective may be less happy. In a recent survey of 250 companies by P-E International on behalf of Management Today, number-crunching expert Dennis Henry found that, over the past three years, profits after tax (PAT) have increased by an average 65%, while dividends have grown by a more generous 82%.
Dividend payments relative to profit after tax
Company Latest Profit 3 year % 3 year % 3 year %
dividend after dividend growth dividend
£000 tax growth in PAT growth
£000 to PAT
LWT 55,701 26,045 1,697 242 601
Carlton 19,455 78,523 723 515 40
Yale and Valor 12,900 38,900 696 455 53
Williams Holdings 56,316 115,407 692 534 29
Scholl (formerly Eur-
opean Home Products) 6,038 9,162 589 155 280
Worst dividend changes:
Ferranti International 0 -160,100 -100 -594
Empire Stores 39 120 -98 -98 0
Chloride 1,300 6,300 -66 -28 -138
Laura Ashley 1,697 -6,749 -62 -147 58
Newarthill 691 -2,645 -57 -134 57
Top of the shareholder pops is LWT, which posted an enormous 1,697% increase in dividend payments as compared with a humble 242% rise in PAT. True, a one-off shareout, the result of capital restructuring, swelled the LWT handout, but television is clearly the place to put your spare cash.
Under the bullish Michael Green, Carlton Communications has seen a rise in PAT of 515%, while dividends have grown by 722%, or almost one and a half times Carlton's improvement in performance.
Shareholders at the Bracknell-based Scholl (formerly European Home Products) should also be getting out the champagne. Comfort footwear and hosiery have provided a more than comfortable increase in return on investment of 589%, though post-tax profits are up by a relatively modest 155%. In other words, dividend growth has exceeded PAT by nearly 300%.
The UK recession has bitten hard into the homes and gardens business of Williams Holdings, but dividends are up by a tidy 692% nonetheless. The industrial and military products division continues to thrive - indeed, current developments may bolster its contracts still more - but even so PAT for the period amounted to only 534%. In short, dividend payments have swollen by nearly 30% over PAT.
Contrast this with the fate of those unlucky enough to invest in Ferranti; they can only be drowning their sorrows in cheap plonk. Post-tax profits have tumbled by almost 600%, with a little help from a few friends on the other side of the pond. Shareholders have lost out with a 100% decline in dividend growth, but even this, painful as it must be, is better than Ferranti's general ill health.
Laura Ashley's run of fortune with frills and flowers has also come to an end. The past three years have seen PAT drop by 147%. However, shareholders have recently suffered in half measure, with a reduction of 62% in dividend growth.
At the newly privatised Newarthill - it belongs to the McAlpine clan once again - the picture is very much the same. The construction industry is collapsing on its feet, but though PAT is down by 134%, dividends have dropped by only half that extent.
Yet not all is doom and gloom for those who do not share Linaker's viewpoint. Empire Stores, the mail order firm whose empire is on the wane, has achieved a reduction in dividends comparable with the decline in its PAT. Chloride Group has gone one better. Batteries may be taking a battering - PAT is down by 28% - but the belt-tightening has been extended to shareholders, with a 60% drop in dividend payments.
Linaker argues that dividends are "the core of the relationship between management and owners". But, in subscribing to the adage that when the going gets tough it is the tough who keep going, Chloride could arguably be said to be serving the best interests of both.
M and G has always zealously guarded shareholder interests. Linaker's predecessor, David Hopkinson, or "Hoppy" to his City chums, was famous for his theory that a fund manager should sell the shares of any company with lavish offices. The grubbier the better, he always maintained.