The Lloyds Bank (LSE:LLOY) share price has been on a runaway road south in recent weeks and this misery doesn’t look like it will end soon.
Today Lloyds announced it won’t be paying dividends in 2020, including the 2019 final dividend. It won’t be buying back any shares either. This comes at the behest of the Prudential Regulatory Authority (PRA). Barclays, HSBC, Royal Bank of Scotland and Standard Chartered all ceased their dividend payouts too.
The Lloyds Bank share price is down 6% today and has dropped over 36% in a month.
The Bank of England base rate has been below 1% since 2009 and is now at 0.1%, its lowest ever. This is an exceptionally tough time for banking and not a time to expect growth. I think the dividend was the only good thing going for Lloyds recently. Without it, there’s not much reason for shareholders to stick around.
Dividend cuts impact income investing
Over 100 companies have cancelled their dividends for 2020, including FTSE 100 firms. This unprecedented sweep across the board is a major blow to long-term income investors.
It’s devastating how quickly coronavirus has impacted the global economy. However, with China’s factories beginning to show signs of life, hope remains on the horizon.
We’re undoubtedly facing a trying few weeks or months ahead, but there’s light at the end of the tunnel. Whether that be in the form of a vaccine, an effective treatment or immunity remains to be seen, but eventually, the pandemic will pass, and some form of normality will resume.
Oil price recovery
Besides the virus impact, oil stocks are being crushed by the plummeting price of oil. Russia and Saudi Arabia have ramped up oil production and are suppressing prices in a risky effort to dent US production. The US shale companies can’t afford to produce oil at such low prices. This means they must shut up shop to bide their time or face permanent closure.
The big oil players such as Royal Dutch Shell (LSE:RDSB) and BP are unlikely to face administration. With their sheer size and influence, they’re in a better place to receive bank loans. It’s also thought they’ve contingency plans in place to deal with oil prices as low as $10 a barrel.
Both Brent Crude and US West Texas Intermediate oils are hovering around $20 a barrel and some analysts think $10 isn’t out of the question. However, I think Saudi Arabia and Russia are taking a big risk with their strategy. With the world in the middle of a global pandemic, I can’t imagine they’ll want to continue on this trajectory for too long.
Although the pandemic is causing a slowdown in energy requirements, this is short term. When industry resumes, oil demand will increase again. Big players like these will then be in a good position to pick up the pieces and resume with strength.
Shell has the proud accolade of having never cut a dividend payment in a 70-year period. I think it’s determined not to give up this track record and has secured a $12bn credit facility. It has boosted its available liquidity to over $40bn, which it’s thought will safeguard its dividend.
The stock market appears to be fragile, but this won’t last forever. I think those brave stock-pickers willing to buy and hold will do very well over the long term.
