The impact of coronavirus on company cash flows has seen dividends slashed from investors seeking income.
The strategy gave a reason for many to invest in stock markets for more than a decade as companies rewarded shareholders with dividends.
The coronavirus lockdown has seen revenues and profits wiped out in just a few weeks.
Now, the tide is turning for investors for income as companies act to protect any cash they might have in the bank.
Shareholders with BT are the latest a long line of disappointed investors.
350 companies cancel dividends
More than 350 UK companies have announced dividend cuts or suspended payments since May 1, according to market analysts Helai Miah of The Sharecentre.
More than half are small cap firms, but worryingly 41 are the FTSE 100 heavyweights and 98 from the FTSE 250.
No market sector has escaped unscathed. Besides BT, they include Royal Dutch Shell, HSBC, Lloyds, Barclays, RBS and Standard Chartered as well as airlines, travel firms and housebuilders.
Miah believes the best places to look for income are utilities, pharmaceuticals, food producers and supermarkets, which have all done well during the coronavirus crisis.
“While supermarkets are doing well now, once the lockdown is lifted the issues they faced before such as competition from the German discounters may get even more intense,” said Miah.
Funds may fare better
“Existing income investors will not be comfortable with the current situation, but investing is for the long term, the economy will recover and so will dividend distributions. While dividends have been cut, the yields on the market has roughly kept in-line and prices too have fallen back. Therefore, for income investors looking to put money away, now is a good time as any.
“Finally, direct equity investing may not be for everyone and the funds route may be a more appropriate choice. For investors wanting dividend income to be smoothed over time they may want to consider an income focussed investment trust.
“These have unique features which allows them to hold back dividend income from underlying investments in the good times, effectively a buffer, in order to continue paying out in the bad times, which is exactly what some of the investment trusts are doing now.”