UK companies conserve cash in the recession - bad news for shareholders?

“Cash is king” in a recession and in 2009 UK companies took the opportunity to retain as much cash as possible by reducing the level of dividend payments by around £10 billion (or 15%) compared with 2008.

UK companies paid out £56.9 billion in dividends in 2009 - 15% less than in 2008 - with investors in the banking sector the worst impacted as the financial crisis wrought havoc, according to Capita Registrars.

Capita found that a total of 202 quoted firms cut their dividends in 2009, 74 of which made no payout at all! Of the £10 billion reduction in dividends, some £6 billion was attributable to dividend cuts by businesses in the financial services sector.

The decision to cut dividends by a quoted company is not one which a Board of Directors takes lightly - but many firms have been under intense pressure to maximise their cash flow and the dividend level is one major cash outflow which is under the direct control of a firm.

This data is directly relevant to students investigating the strategies and decisions taken by UK businesses during the recent recession. It would be worth students looking out for evidence of dividend cuts by the firms and/or industries which they are researching.