by Dave Baxter, Investors Chronicle, March 19, 2024:
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..
So the adventurous investor might well use a dividend cut as a contrarian buy signal, and they have a few new options on this front. Abrdn European Logistics Income (ASLI), which unveiled a strategic review in November and has since received a number of merger approaches from other entities, recently announced it would forgo declaring a dividend for the fourth quarter of 2023 to allow itself “maximum flexibility”.
Funds in more esoteric subsectors have had their own issues, with battery storage vehicles Gresham House Energy Storage (GRID) and Harmony Energy Income (HEIT) shelving their payouts in the face of revenue struggles. More severe problems have also become apparent for Hipgnosis Songs (SONG), which dropped a dividend last year as it attempted not to breach debt covenants, and for Digital 9 Infrastructure (DGI9), whose balance sheet woes prompted it to scrap its dividend and later outline plans to wind up.
The trusts mentioned above do look cheap by certain metrics, with share price discounts to net asset value (NAV) ranging from 23.6 per cent (on ASLI) to 77.3 per cent (in DGI9’s case)..
Meanwhile, James Carthew, head of investment company research at QuotedData, has put money into DGI9 shares at a variety of different levels, ranging from 15p to 40p. The shares recently traded at 22.5p.
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