The Lloyds share price (LON:LLOY) sank on Wednesday after the UK banks announced it would be cutting its dividends with immediate effect.
Lloyds will not pay any dividends from 2019 and will cancel future payments in 2020 to conserve cash during the coronavirus crisis.
Lloyds share price
The news sent the Lloyds share price down as much as 6% in an immediate market reaction.
Such news will be a body blow to Lloyd’s investors who have enjoyed a progressive dividend policy that has made Lloyds one of the most popular shares for income among retail investors.
The Lloyds dividend cut came after UK banks received letters from the Bank of England’s Prudential Regulation Authority outlining advice to cut dividends as well as stopping cash bonuses for senior staff.
Lloyds released the news to investors with a statement on their dividend:
“In order to help us to serve the needs of businesses and households through the extraordinary challenges presented by Covid-19, the board has decided that until the end of 2020 we will undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares.
“In addition, in response to a request from the PRA and to preserve additional capital for use in serving our clients, the board has agreed to cancel payment of the final 2019 dividend in relation to ordinary shares. Accordingly, resolution 17 in relation to the declaration of that dividend will be withdrawn from the AGM, scheduled to take place on 21 May 2020. Our board will decide on any dividend policy and amounts at year-end 2020.”
While the cut in dividends will be a blow to investors in the short-term, once the coronavirus induced economic slowdown subsides it is likely the bank will resume paying dividends.
Lloyds and other UK banks are in a strong financial positions following the adoption of stringent capital ratio so whilst the economic slowdown may hinder profitability it won’t have the devastating impact the financial crisis did.