Company profits have taken a serious hit this year, with even many successful businesses having struggled for survival and made losses. In many cases, the pain has been shared with shareholders, which is a problem for people who rely on dividends to bolster their income.
A dividend is a share of a company’s profits. If that company is battling to stay in business or to protect the jobs of its employees, profits are likely to fall and the money it pays to shareholders may reduce. That’s a fair way to spread the impact when an unforeseen event such as a pandemic takes its toll.
So, for those who have direct investments in company shares that normally pay a dividend, or in a fund that aims to provide an income, 2020 has been tough. Some companies have scrapped dividend payments, while others have reduced them.
Some sort of normal service will hopefully resume next year for survivors of the crisis, although it may be some time before dividend payments return to the levels we have seen in the past.
We are happy to help people who use dividend income as part of their retirement planning in Shropshire. One option we consider for those who don’t need the income is a dividend reinvestment plan – often called DRIP. These are offered by companies as an alternative to cash dividends. Instead of sending out a cheque, the payment is used to buy more shares for shareholders. This increases the size of the holding and helps the individual benefit from future share price growth.