- Investment trusts across several sectors have paused dividends as they grapple with various problems
- Do the accompanying share price tumbles offer an opportunity?
While far from universally popular among investors, dividend cuts can sometimes be a blessing in disguise. They can drive share prices down to attractive levels while also allowing companies to put cash to better use.
This is a premise that can feed into how some funds are managed. Law Debenture (LWDB), can generate additional income from its separate professional services business, which allows it to focus less on chasing yield from its shares. Accordingly, the trust holds some companies that have cut their dividend and can be seen as recovery plays. The team holds companies such as Rolls Royce (RR.) (which cuts its dividend in 2016), and noted in the trust's recently published annual results: "When companies are in the midst of recovery, it is often right to pause dividend payments, as they may be in a cash consumptive phase that often comes with substantial restructuring costs."