Rolls-Royce slumps as investors prepare for dividend cut

Rolls-Royce shares were under pressure on Monday amid reports management of the aerospace and defence group will cut the dividend this week for the first time in 25 years.

The company, which has issued five profit warnings in the last two years, will publish its financials on Friday.

It announced a “major restructuring” in November aimed at saving between £150m and £200m per year from 2017.

It also warned in November that it might cut the dividend amid a slowdown in demand for spares and services for existing aero-engines.

Brenda Kelly, head analyst at London Capital Group, said consensus in the City is that Rolls will post underlying pre-tax profits of £1.3bn for 2015, down 20% from the previous year and below the company’s guidance of £1.33bn to £1.48bn.

Meanwhile, Mike van Dulken, head of research at Accendo Markets, said the possibility of a cut to income is a major theme among corporates as they deal with margin pressure amid a tough economic environment.

He said while RR’s 3% yield is far from the high single digits at risk among commodity-focused names, it highlights how bad things have got, “as if five profit warnings in less than two years wasn’t enough."

“The sacred investor dividend is after all akin to a castle keep - a refuge of last resort to maintain shareholder interest and always defended to the very last. But at the avoidance of another profits warning could a brief dividend cut be a relief of sorts?”

At 1110 GMT, Rolls-Royce shares were down 3.6% to 510p.