UK FTSE 100 (.FTSE) Stocks to edge lower as traders mull lockdown easing

UK FTSE 100 (.FTSE) Stocks to edge lower as traders mull lockdown easing

UK FTSE 100 (.FTSE) Stocks to edge lower as traders mull lockdown easing

London stocks were set to edge lower on Tuesday as investors continue to mull the loosening of lockdown restrictions in the UK and abroad.
The FTSE 100 was called to open 12 points lower at 5,927.

Shayne Heffernan Trade Idea

“The pound sold off yesterday as dealers felt the UK’s exit strategy from the lockdown will be too slow. Prime Minister Johnson laid out his plans to unwind the lockdown restrictions on Sunday, and traders felt the process would keep the British economy in an economic coma for too long, so the pound came under pressure.

“In light of what is going on in Germany and South Korea, a gradual loosening of the restrictions might not be a bad thing in the near term as far as the health situation is concerned.”

Chancellor Rishi Sunak is expected to announce later in the day that the furlough scheme will be extended to September, but cut to 60% of earnings from 80%.” Shayne Heffernan PhD in Economics

Stocks to Watch

In corporate news, Morrisons kept its dividend options on hold as the supermarket group reported an increase in like-for-like sales for the first quarter fuelled by the Covid-19 crisis.

Group sales at outlets open a year or more, excluding fuel, rose 5.7% after three straight quarters of declines. Including fuel, like-for-like sales fell 3.9%, Morrisons said in a trading update.

The FTSE 100 company said it was keeping options for distributing cash under review after deferring a planned special final dividend in March.

Morrisons said the outlook was very uncertain but that its best guess was that Covid-19 costs would be broadly offset by savings on business rates.

Property developer Land Securities pulled its final dividend as full year losses widened and asset values fell.

The company posted a pre-tax loss of ?837m compared with a loss of ?123m a year ago while its asset valuation was down 8% to ?1.2bn, due to an already tough trading environment exacerbated by the coronavirus pandemic and associated retail shutdowns.

“While it is too early to predict outcomes with any certainty, it seems prudent to plan for more business failures and higher vacancy rates across our portfolio, in particular leisure and retail, and we don’t expect to see the economy recover to pre-Covid-19 levels before 2022 at the earliest,” the company said.

Why This Matters

As an investor, if you were hoping to at least partially offset the recent plunge in share prices with a regular, and hitherto reliable, dividend income payment, you may be in for some disappointment. Public companies have reduced the dividends they pay at a record pace which has put annual payments worth more than £50 billion at risk.

Here, we consider what the dividend cuts mean for you and what the future may hold.

What has happened and why?

Perhaps inevitably, due to the unprecedented scale of the current economic upheaval, companies across a range of sectors have cancelled their planned dividend payments and diverted the cash to shore up their balance sheets. This is to help companies navigate the ongoing uncertainty that the coronavirus has inflicted, and continues to inflict, on the economy. While many policymakers have welcomed this prudence – and some, such as financial regulators have all but insisted on it for banks and insurance companies – this is not without significant ramifications for you as an investor, and owner, in those businesses.

What does this mean for me?

By choosing to reinvest dividends rather than taking an income, you can benefit from compounding, as the additional shares acquired will help to boost overall returns over time. This means that if you are no longer receiving dividend payments, this can reduce the future growth potential of your investments.

If you are coming up for retirement and were planning to rely on your dividends to supplement your income (such as a state pension for example) and don’t have any other funds to draw on, you may now have to delay your retirement date or accept that you’ll have a lower income. If you are already retired, there are a few things that you can consider, such as reducing discretionary spending.

It’s usually recommended that you review your investments (including pensions) once a year. But, given the current stock market conditions, if you’re nearing retirement or have just retired, it can be worth revising your plans now.

What does the future hold?

Share prices have already fallen a long way in anticipation of the likely reduced dividend income on offer in the future. What this means for you is that, for the vast majority of companies, the new normal is a lower share price. However, indiscriminate repricing of shares – i.e. all companies being tarred with the same brush – mean it’s a great opportunity for good stock selectors, if 2002 and 2008 is any guide.

However, it is important to note that the nature of this downturn is somewhat different to what we have experienced in the past. On this occasion, large parts of the economy have been put into lockdown. However, these sectors (such as leisure, tourism, and hospitality for example) are likely to be restarted if, and more likely when, government containment efforts prove effective. In this scenario, we expect many companies will be able to resume paying dividends again relatively quickly.

But is this guaranteed? In short, no. For one, companies may suffer reduced profitability in the future which could have a negative impact on dividends, But also, when companies are permitted to restart paying dividends will depend to some extent on what approach regulators and politicians take to limiting future dividend payments. Certainly, companies that have accessed taxpayer support during this period of uncertainty may find that they need to overcome new hurdles before they can restart paying dividends.

Furthermore, a lot of the support being accessed by companies is in the form of debt but it is unclear how this debt will be treated in the future. Restarting dividend payments to shareholders while having a significant liability to debt-holders may prove controversial. If debt-holders are to be prioritised over shareholders then the latter may decide that they are prepared only to pay a lower price for owning shares in listed companies. However, it is worth pointing out here that there are plenty of companies that pay dividends and have debt – it’s certainly efficient to do so in many cases.

This current period of not paying dividends will also raise questions over whether paying dividends represents the best use of shareholder capital. One possible explanation for Britain’s relatively poor productivity in recent years has been the inclination to recycle profits back to shareholders in the form of dividends, rather than invest in research and development and the productivity of their workers.

Conclusion

The coronavirus is undoubtedly causing permanent damage to some parts of the economy and to some companies’ capacity to pay their dividend in the future. For this reason, it is now as important as ever to consider adopting a multi-asset approach to investing. A multi-asset fund combines different asset classes together. An allocation to both shares and bonds may help to deliver a regular stream of income. However, there are no guarantees – companies with no cash flow to pay dividends could find their ability to pay bond holders interest under pressure too, which could potentially lead to the bonds defaulting.

However, a multi-asset fund does offer diversified exposure across a number of companies in a range of different sectors so avoids over-reliance on any one particular company or sector. Also, by outsourcing the decision-making for selecting dividend paying companies and income yielding bonds to an expert fund manager, you are benefiting from the manager’s skill and expertise in navigating these turbulent and uncertain times.

Technical Indicators

Overall, the bias in prices is: Downwards.

The projected upper bound is: 6,481.90.

The projected lower bound is: 5,353.45.

The projected closing price is: 5,917.68.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 63.1924. This is not an overbought or oversold reading. The last signal was a buy 2 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 54.03. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 31 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 75. This is not a topping or bottoming area. The last signal was a sell 5 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 30 period(s) ago.

Rex Takasugi – TD Profile

FTSE 100 INDEX closed up 3.750 at 5,939.730. Volume was 3% below average (neutral) and Bollinger Bands were 51% narrower than normal.

Open       High        Low        Close          Volume
5,935.980  5,999.130   5,898.320  5,939.730      1,041,393,536
Technical Outlook
Short Term:         Neutral
Intermediate Term:  Bullish
Long Term:          Bearish
Moving Averages: 10-period        50-period           200-period
Close:           5,891.75         5,787.63            6,962.44
Volatility:      36               63                  35
Volume:          1,097,981,184    1,402,177,536       895,905,792

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FTSE 100 INDEX is currently 14.7% below its 200-period moving average and is in an upward trend. Volatility is low as compared to the average volatility over the last 10 periods.

Our volume indicators reflect volume flowing into and out of .FTSE at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .FTSE and have had this outlook for the last 19 periods.

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