Supermarket chain Tesco, for instance, was forced to defend itself after it handed investors £900m in dividends, despite having taken £585m from the government’s business rates relief holiday.
Those figures could look shameful, but anyone with any understanding of finance can see it is a case of adding two and two making five.
Dividends are an interesting issue. Are they bribes to shareholders?
Of course not. They are rewards. Effectively a company says, ‘invest with us and we will give you some money back if all goes well’.
Without dividends, most pension savers would struggle. They are a really important income stream for many savers, pensioners and institutional investors, including pension funds and charities.
They are crucial in making stock market returns effective. After the FTSE 100’s dramatic falls, the blue-chip index had a couple of relatively good days.
But even then, I pointed out, it had only recovered back to a level it had first reached 22 years earlier in 1998.
In other words, if you had invested back then in the FTSE 100, 22 years later the amount would have been the same.
Someone was quick to point out that an investor would have pocketed 22 years of dividends and so would be much better off despite the index turmoil, which is true (ignoring any charges, of course).
And that underlines why dividends are so important to investors, even though most ordinary folk may not even realise that.
At a time when the Bank of England is demanding that banks and insurers scrap dividends temporarily because of unforeseen problems ahead, it is an opportunity to help clients understand the finance behind the headlines.
Start the dialogue with them now about why it is important that companies that are cancelling dividends, restart them as soon as possible.
Once they understand that, they will hopefully be more reassured about the importance of long-term financial planning.
Simon Read is a freelance journalist
