Growing speculation that Rolls-Royce (RR.) is on the brink of announcing its first dividend cut in nearly a quarter of a century sent the embattled engineer’s already downtrodden shares plummeting further to a five-year low. While fears of a payout cut aren’t new, the latest analyst forecasts that Rolls will slash its dividend by 30 per cent to 17p when it announces its full-year results on Friday pushed disgruntled investors into panic mode.
Talk of the engineer axing its dividend first surfaced in November after the group’s management team stated that persistently tough trading conditions had forced bosses to place it under review. A blog by Neil Woodford, the star fund manager who recently sold his £230m stake in the company, added weight to this argument. When documenting why he decided to dump his decade long holding at a loss, Mr Woodford stressed that treacherous trading conditions made the likelihood of dividend cuts an increasingly credible scenario.
Judging by the consistent sell-off of Rolls’ shares since November, some are also worried that forthcoming results could be accompanied by profit warning number six. Those fears have been exacerbated by continued pressure on the marine business, tricky mining markets and a lack of demand for the group’s core aerospace engines. Indeed, even the recent announcement of a $2.7bn (£1.9bn) order from budget airline Norwegian failed to lift sentiment.
