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Investors Expect Dividend Cuts

56% of personal investors are concerned that businesses may cut their dividends, according to research by The Share Centre (SC).

2,000 investors responded to the research which was undertaken shortly before a number of FTSE 100 companies announced that they are planning to cut their dividends income by as much as 75%.

SC found that 70% of investors are looking for income from their savings, either as the principal goal (15%) or in a balanced portfolio alongside growth (55%).

Investors nearing retirement and looking to collect income from their savings have been effected by low interest rates. Cash savings have also delivered little income, leading to investors to use stock markets as an alternative, and riskier, source of revenue.

Richard Stone, chief executive of SC, said:

“As investors turn their attention to ISAs and making the best use of their ISA allowances, with little prospect of returns on cash increasing and with dividends coming under pressure, those seeking income are left with an uncomfortable choice. 

“The danger is that investors, in their quest for income, are tempted by the returns offered by riskier activities such as crowdfunding or peer-to-peer lending.”

Dividend Tax Changes

For investors, the 10% tax credit will be replaced with a new dividend tax allowance of £5,000 from April 2016. The annual allowance will not reduce total income for tax purposes and will only apply to dividend income.

Income exceeding the annual allowance will be taxed at the following rates:

  • basic rate – 7.5%
  • higher rate – 32.5%
  • additional rate – 38.1%
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