The coronavirus pandemic has been disastrous for income investors. Falling asset prices make it a dangerous time to take money from your portfolio and interest rate cuts have restricted yields available. Even more worryingly, the economic uncertainty induced by the current lockdown could result in greater problems for an area many rely on for income.
Dividends are on the chopping block as companies attempt to weather the crisis. Investors Chronicle calculations found that more than £2.9bn of dividend cuts have been made by FTSE 350 companies in recent weeks. And with the possibility that the lockdown could go on for some time and the fact that not just companies in dire financial straits are cutting their dividends, even more sources of income might dry up.
For equity income funds, this presents huge difficulties. Open-ended funds are only allowed to pay the income they receive from holdings, meaning that their investors are likely to receive much less money than normal. Total returns provide little respite for investors thinking of selling units in funds to raise cash – not a single fund in the Investment Association (IA) UK Equity Income sector has lost less than 20 per cent over the three months to 30 March, according to FE data.