Big-name retailers, most recently Sainsbury’s, have become embroiled in controversy for paying dividends while benefiting from pandemic assistance measures such as business rates relief. We ask industry experts whether retailers should be giving out dividends during the crisis

Ian cheshire

Sir Ian Cheshire, chair of Barclays and former chief executive of Kingfisher

I believe retailers should be able to pay dividends if, and only if, they can pass three tests to prove: they haven’t taken subsidies including furlough and loans (I exclude rates relief as that has gone to everyone); they’ve remained profitable with manageable levels of debt on the balance sheet; and they haven’t abused their workforce or suppliers in order to survive the crisis.

Robust businesses should be able to pay dividends and millions of pensioners rely on this income, as Legal & General has recently said. 

It is also vital, as we have seen in the banking sector, to keep firms ‘investable’ in the future – the regulators’ stop on dividends for all banks has massively impacted the valuations of the sector and raised concerns over future access to capital markets if investors can’t count on future returns. 

While it’s clear that businesses in trouble should conserve cash, shareholders do have the right to expect good businesses to generate returns – unless you can provide an Amazon-style capital gain then dividends and buybacks are essential to keep our pension funds healthy for the future.

Clive black 2

Clive Black, head of research, Shore Capital

UK supermarkets are ‘beneficiaries’ of elevated sales resulting from the pandemic (as is the online channel) as well as a rather blunt British government policy to support the offline trade, in business rate relief, when many others have not.

However, those grocers have also encountered materially elevated costs, involving thousands of shielded and vulnerable people, and pulled rabbits out of the hat to feed the nation – the grocers and their workers are heroes, key players in our wellbeing, infrastructure and security.

The government knows that; the people know that.

It is a bit rich for the chair of Howdens, which has taken gazillions from British grocers, to campaign for the supermarkets to repay rate relief – supermarkets that furloughed no one and, with British domicile, pay substantial corporation tax (unlike many with complex foreign tax structures).

The grocers’ dividends are paid from previously funded assets and operational dexterity, not rate relief. Future policy energy should be focused on business rates reform and how the digital channel pays its way.

Luke-Tugby-2020_SQUARE

Luke Tugby, editor, Retail Week

Let’s be clear on one thing straight off the bat – I believe the grocers have done a fantastic job during the pandemic in keeping the nation fed, prioritising the elderly and vulnerable, and ensuring colleagues who have had to self-isolate remained in paid employment. Their collective efforts in those areas have been nothing short of heroic. 

While I am certainly not going to attack the likes of Tesco and Sainsbury’s for paying a dividend – particularly as they have not taken Covid loans or tapped into the furlough scheme during the pandemic – doing so in such turbulent times carries a huge reputational risk. 

Sainsbury’s, for instance, revealed its special dividend in the same financial results filing that it confirmed 3,500 jobs would be lost as a result of closing hundreds of standalone Argos stores and its in-store meat, fish and deli counters. Those optics are far from great. Affected employees and their families have a right to feel aggrieved that their employer is paying out hefty sums to shareholders with one hand and potentially taking their jobs away with the other. 

Listed business clearly have a duty to look after all key stakeholders – their investors, their customers and their colleagues. The concern is that paying dividends to look after the former risks alienating the latter.

Delaying or deferring dividends – as Morrisons opted to do with the special dividend it had initially planned for the second half of 2019/20 – is likely to be the best way to keep all three groups onside during this crisis.