Rolls-Royce slumps as investors prepare for dividend cut

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.