Shell’s decision to cut its dividend in April, for the first time since WWII, may not have entirely surprised investors. After all, there had already been widespread dividend reductions or suspensions throughout the market.
Few imagined how aggressive the cut would have been, however, with the first quarter distribution being slashed from 47 cents to just 16 cents. The company is responsible for close to a fifth of UK dividend income, and so the decision was of considerable significance to UK equity income funds; albeit our holding was underweight relative to the FTSE All Share Index.
The cut prompted a widespread sell-off in Shell among equity income funds. Yet we were not among them. That reveals a striking difference in the way in which we perceive our job as income investors, as compared with many others. Rather than obsessing over absolute dividend yields, our investment philosophy is focused on assessing underlying company fundamentals – the abilities to generate sustainable cashflow-backed dividends.