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Rolls Royce (RR.) share price thrusters in reverse at this morning on news management is set to meet Thursday to discuss the extent of its first dividend cut in more than 20 years (by how much? for how long?). Weakness limited, however, by shareholder relief from talk of the company avoiding a sixth profits warning which markets feared could be announced within Friday’s FY preliminaries. Loyal holders thankful shares holding above recently depressed 6yr lows of 505p, and already off this morning’s lows.
The possibility of a cut to income is a major theme among corporates as they deal with margin pressure amid a tough economic environment and while RR’s 3% yield is far from the high single digits at risk among commodity-focused names, it highlights how bad things have got (as if 5 profit warnings in less than 2 years wasn’t enough). The sacred investor dividend is after all akin to a castle keep – a refuge of last resort to maintain shareholder interest and always defended to the very last. But at the avoidance of another profits warning could a brief dividend cut be a relief of sorts?
Mike van Dulken, Head of Research
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